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HOW  THE 


NEW  CURRENCY  LAW 

AFFECTS  ME 


With  Explanations, 

By 

GEORGE  H.  SHIBLEY 

Expert  to  the  Senate  Committee  on  Banking 
and  Currency 


New  York 

J.  S.  0GILV1E  PUBLISHING  COMPANY 
57  Rose  Street 


How  the 

New  Currency  Law 

Affedts  Me 


With  Explanations, 

By 

GEORGE  H.  SHIBLEY 

Recent  Expert  to  the  Senate  Committee  on 
Banking  and  Currency 


Copyright  1914 

by  J.  S.  Ogilvie  Publishing  Company 


New  York 

J.  S.  Ogilvie  Publishing  Company 
57  Rose  Street 


LaXa 


33 ZA  ^ 

SW  i Vu 


Part  I. 
Part  II. 


CONTENTS 

Outline 

Federal  Reserve  Act  in  Full 


Page 
. 7 

. 19 


Partin.  History  of  Fluctuations  in  Pur- 
chasing Power  of  Money,  1897- 
1914 


cl 

3 

j 

* 


c^> 


3 


ALPHABETICAL  INDEX 


Pages 

Agriculturalists’  present  position 12,  86 

Aldrich- Vreeland  act  extended 89 

Bank  credit,  stability  of 15 

Bank  examinations,  new,  law  for 81-85 

“Bank  of  Banks” 17 

Bank  reserves,  for  national  banks 76-81 

for  reserve  banks.  See  Federal  Reserve 
banks. 

Banks,  reserve,  gold  reserve 62 

Bonds,  refunding  of 71 

“Call  Money,”  future  of 13 

Competition  regulated  13 

Constitutional  law  91 

Cost  of  living 15 

Depositors’  Insurance  Fund 12 

Depressions  11 

Elastic  volume  of  money 8 

European  systems  compared 8 

Farm  loans  86 

Farmers,  present  position  of 12 

Federal  Reserve  Banks,  board  of  directors....  31 

branch  offices  27 

capital  stock  22,  26,  37 

conditions  for  joining 28 

earnings,  division  of 39 

exchange,  cost  of 69 

exemption  from  taxation 41 

Federal  Advisory  Council 54 

Federal  Clearing  House 71 

government  deposits  61 

National  banks,  powers  of 60 

number  28 

note  issues  62 

organization  of  28 

open  market  operations 59 

powers  29,  55-62 

rediscounts  55 

State  banks  may  join 41,  42 

trust  companies  under  Federal  law 53 


6 ALPHABETICAL  INDEX 

Pages 

Federal  Reserve  Board,  powers 7,  9,  46-53 

qualification  of  members 44 

Federal  Reserve  Districts 20 

Federal  Reserve  system,  date  for  beginning. . . 18 

Foreign  branches  for  national  banks  and  re- 
serve banks  86 

Gold,  volume  of 14 

Guaranty  of  bank  deposits.  See  Depositors’ 
Insurance  Fund. 

Inflation,  prevention  of 8,  16,  65 

Interest  rate,  control  of  the  immediate 9 

effect  on  price  level 9 

probable  future  16 

Mechanism  for  stability 8 

Mobilization  of  reserves 8 

Money,  history  of  fluctuations  in  purchasing 

power  of  92-95 

Money  trust,  effect  of  new  system 13 

National  bank  notes,  retirement  of . ...  72-76 

Panics  10 

People  in  control 9 

Price  level,  control  of 10 

history  of  fluctuations,  1897-1914 92-95 

measurement  of  9,  92 

Purchasing  power  of  money.  See  price  level. 

Reserves,  mobilization  of 8 

Secretary  of  Treasury,  powers  of 9,  18 

Speculation  discouraged  7 

Stable  money,  meaning  of 8 

Trust  prices,  relation  to  price  level 17 

Unified  control  of  interest  rate 8 

Wages,  relation  of  money  question  to 16 


HOW  THE  NEW  CURRENCY 
LAW  AFFECTS  ME 


PART  I 
OUTLINE 

The  passage  of  the  new  Banning  and  Cur- 
rency Law  marks  the  beginning  of  a new  and 
better  era  in  the  American  business  world,  as 
the  following  facts  demonstrate* 

One  of  the  main  features  in  the  new  law  is 
as  follows: 

li  Every  Federal  reserve  bank  shall  have 
power:  . . . (d)  To  establish  from  time  to 

time,  subject  to  review  and  determination  of 
the  Federal  Reserve  Board,  rates  of  discount  to 
be  charged  by  the  Federal  Reserve  bank  for 
each  class  of  paper,  which  shall  be  fixed  with  a 
view  of  accommodating  commerce  and  busi- 
ness.” (Sec.  14.) 

In  other  words,  in  place  of  the  immediate 
control  of  the  interest  rate  for  money  by  the 
moneylenders,  largely  the  great  speculative 
banks,  the  rate  from  now  on  is  to  be  con- 
trolled for  the  entire  nation  by  the  Federal  Re- 
serve Board,  consisting  of  seven  members  ap- 
pointed by  the  head  of  the  Government  whom 
7 


8 


HOW  THE  NEW  CURRENCY 


the  people  have  elected,  and  the  acts  of  whose 
administration  will  be  passed  upon  at  each  Na- 
tional election.  Thus  the  people  are  in  power 
in  the  administration  of  this  Federal  Reserve 
Act. 

Stated  another  way,  for  the  entire  United 
States  there  will  be  a unified  control  of  the 
immediate  interest  rate  for  money,  thereby  con- 
trolling the  volume  of  money  and  of  credits  in 
use,  and  this  control  will  be  from  the  standpoint 
of  promoting  the  interests  of  the  general  public. 

This  general  system  has  existed  in  the  lead- 
ing countries  of  Europe  for  many  years  and, 
therefore,  is  no  experiment.  Its  great  value 
is  beyond  question.  Its  establishment  in 
our  remarkably  large  country,  and  a country 
that  is  in  a condition  where  stability  in  the 
purchasing  power  of  money  will  doubtless  be- 
come the  criterion,  will  result  in  a new  era — an 
era  of  stability  in  the  purchasing  power  of 
money — Stable  Money. 

THE  MECHANISM  FOR  MAINTAINING 
STABILITY 

The  mechanism  whereby  stability  in  the  pur- 
chasing power  of  money  is  to  be  attained  is  in 
two  main  parts:  First,  an  elastic  volume  of 
money  (Sec.  16);  and,  second,  the  concen- 
trating and  making  mobile  of  a portion  of  the 
bank  reserves  (Secs.  13,  14,  19).  By  a com- 
bination of  these  two  methods  the  Reserve 


LAW  AFFECTS  ME 


9 


banks,  acting  under  the  constant  supervision  of 
the  national  board,  should  be  able  to  secure 
stability  in  the  purchasing  power  of  money. 

More  in  detail,  there  can  be  no  more  general 
panics  for  money  because,  one,  the  volume  of 
money  is  to  be  elastic;  and,  two,  the  volume  is 
to  be  controlled  by  a Government  Board.  This 
takes  the  place  of  a practically  inelastic  vol- 
ume of  money  in  this  country;  and,  heretofore, 
the  control  in  this  country  has  been  in  the  pri- 
vate banks,  largely  the  great  speculative  banks, 
except  as  foreign  bankers  and  foreign  govern- 
ments or  the  Secretary  of  the  Treasury  of  the 
United  States  have  interfered.  Thus  public  con- 
trol is  being  substituted  for  private  control. 
This  vast  change  is  similar  to  that  which  has 
taken  place  in  the  control  of  interstate  railways. 

The  controlling  power,  as  has  been  shown,  will 
be  the  Federal  Reserve  Board,  representing  the 
people.  This  board  will  control  the  immediate 
interest  rate  for  money  and  thereby  control  the 
demand  for  credits  and  money,  which  will  de- 
termine the  volume  of  money  and  credits  in 
use,  which,  in  turn,  will  be  a determining  factor 
in  fixing  the  purchasing  power  of  money — the 
price  level.  The  11  price  level”  is  the  average 
of  prices  for  products.  In  the  past  this  average 
has  fluctuated  greatly,  as  is  pointed  out  in 
Part  III. 

The  price  level  for  products  at  wholesale  will 
doubtless  be  measured  each  business  day  by  the 
Federal  Reserve  Board,  thereby  supplying  a 


10 


HOW  THE  NEW  CURRENCY 


real  gauge  for  fixing  the  immediate  interest 
rate  for  money,  just  as  a fireman  is  supplied 
with  a steam  gauge.  For  ten  years  the  Federal 
Government  has  been  measuring  the  price  level,* 
and  now  a national  board  is  being  established 
for  the  control  of  this  price  level,  and  with  in- 
structions to  do  so  “with  a view  of  accommo- 
dating commerce  and  business/' 

Much  will  depend  upon  the  meaning  which  the 
President  and  his  Federal  Reserve  Board  shall 
place  upon  the  words  “accommodating  com- 
merce and  business/ ' The  House  struck  from 
the  Administration's  bill  the  words  “and  pro- 
moting a stable  price  level/'  Had  those  words 
been  kept  in  the  bill  the  money  question — that 
is,  the  contest  over  the  control  of  the  volume 
of  money  and  credits — would  have  been  settled. 
Justice  in  money  matters  between  the  compet- 
ing industrial  groups  would  have  been  estab- 
lished. As  it  is,  the  money  question  has,  for  the 
coming  three  years,  been  passed  up  to  the 
President  and  his  Federal  Reserve  Board. 

But,  at  any  rate,  the  Federal  Reserve  Board 
will  aim  to  prevent  fluctuations  in  the  price 
level,  and  it  will  prevent  any  considerable  fall, 
so  that  we  are  warranted  in  presenting  the  fol- 
lowing general  summary  as  to  the  results  that 
probably  will  flow  from  the  new  system: 

In  place  of  violent  fluctuations  in  the  inter- 
est rate  for  money,  panics  for  money,  and 

• “Measurement  of  Price  Level  by  the  Govern- 
ment," see  Part  III,  at  page  92. 


LAW  AFFECTS  ME 


11 


periods  of  industrial  depression,  there  will  exist 
a system  of  money  and  credit  wherein  the  in- 
terest rate  will  he  practically  stable,  and  no 
such  thing  as  a general  panic  for  money  can 
exist,  while  periods  of  deep  industrial  depres- 
sion will  be  a thing  of  the  past,  because  from 
now  on,  owing  to  the  unified  and  intelligent 
control  of  the  immediate  interest  rate  for  money 
by  our  Federal  Reserve  Board,  added  to  similar 
systems  throughout  Europe,  there  will  be  pre^ 
vented  the  undue  expansion  of  credits,  and  the 
resulting  rise  in  the  price  level,  which  hereto- 
fore has  culminated  in  panic  and  the  collapse 
of  the  credit-structure  with  falling  prices  and 
deep  depression.  In  other  words,  cycles  of  ris- 
ing price-levels  followed  by  panic,  falling  prices, 
and  depression  will  no  longer  be  permitted. 
The  United  States  possesses  forty  per  cent,  of 
the  banking  power  of  the  world,  and  now  that 
she  has  joined  the  European  countries  in  pro- 
viding an  intelligent  control  of  the  price-level 
a new  era  is  being  entered  upon — a new  era 
in  monetary  science  and  business  conditions. 
Therefore,  the  wise  business  man  will  study  the 
system.  This  will  be  no  child’s  play,  for  the 
causes  that  are  being  set  in  operation  are  com- 
plicated and  far-reaching. 

Before  presenting  the  new  law  in  detail  we 
herewith  outline  some  of  the  principal  changes 
which  the  new  law  will  bring  into  operation. 


12 


HOW  THE  NEW  CURRENCY 


THE  PEOPLE  IN  CONTROL 

Additional  proof  that  the  people  are  again  in 
control  in  national  affairs  is  the  fact  that  in 
this  law  the  agriculturists  have  been  given 
their  fair  share  of  rights  (Secs.  13,  24,  and  2); 
and  a system  of  agricultural  banks  is  to  be 
established. 

Also,  there  is  promised  during  the  coming 
months  the  establishment  of  a Depositors  ’ In- 
surance Fund  in  connection  with  the  Federal 
Reserve  system.  When  this  has  been  accom- 
plished then  no  depositor  in  the  Federal  Re- 
serve system  can  lose  his  or  her  money;  also  the 
bankers  themselves  will  be  protected  from 
“runs”  by  depositors;  and  every  business  man 
will  be  secure  from  the  danger  of  having  his 
funds  tied  up  in  a bank  receivership.  In  the 
recent  Senate  bill  as  it  went  to  conference  the 
necessary  funds  for  the  payment  of  losses  were 
to  come  from  a portion  of  the  vast  profits  which 
the  Government  is  to  receive  from  the  Federal 
Reserve  system. 

Heretofore  the  portion  of  the  bank  reserves 
not  in  the  vaults  of  the  individual  banks  of  the 
national  system  were  in  the  “Reserve  Cities” 
and  in  the  three  “Central  Reserve  Cities” — 
New  York,  Chicago,  and  St.  Louis;  also,  these 
reserves  were  in  privately  owned  banks,  some 
of  which  had  come  to  exercise  tremendous 
power.  In  the  new  system  the  principal  reserve 
banks  are. to  be.  owned,  and  operated  cooper- 


LAW  AFFECTS  M.E 


13 


atively;  and  these  reserve  banks  thus  owned 
and  operated  are  to  be  spread  out  in  at  least 
eight  districts,  and  possibly  as  high  as  twelve 
districts. 

Part  of  the  preceding  system  was  that  a con- 
siderable portion  of  the  reserves  in  the  central 
reserve  cities  were  loaned  out  on  <^call,,  for  use 
in  the  stock  market,  in  order  that  the  money 
should  be  forthcoming  when  wanted.  This 
“call”  money  system  was  developed  because  of, 
one,  the  absence  of  an  elastic  volume  of  money; 
and,  two,  the  absence  of  a rediscount  market. 
Both  of  these  defects  are  remedied  in  the  pres- 
ent system;  and  the  rediscount  system  is  not 
to  be  used  to  supply  funds  for  stock  speculation 
(Sec.  13). 

REGULATED  COMPETITION 

Furthermore,  the  increased  fluidity  of  bank- 
ing capital,  due  to  the  rediscount  system,  com- 
bined with  the  inability  of  the  great  private 
banks  to  longer  control  the  interest  rate  or  to 
prevent  business  enterprises  from  getting  funds, 
will  put  at  end  to  bank  domination.  Therefore 
the  Government  is  not  to  loan  money  to  the 
individual  citizens,  relying  upon  regulated  com- 
petition among  25,000  banks. 

FEDERAL  CLEARING  HOUSE 

One  of.  the  great  benefits  to  the  citizens  is  to 
be  the  unification  of  a considerable  portion  of 


14 


HOW  THE  NEW  CURRENCY 


the  privately  owned  banks  of  the  country  for 
the  cheap  transfer  of  funds.  In  each  reserve 
bank  the  checks,  as  they  pour  into  it  daily,  will 
be  gathered  up  for  delivery  to  the  member 
banks,  each  of  the  said  member  banks  being 
charged  or  credited  with  the  balance  against 
it  or  for  it.  In  this  way  the  cost  of  trans- 
acting the  country’s  business  will  be  reduced 
to  the  minimum.  In  Europe  each  country  hav- 
ing a central  bank  and  branches  possesses  a 
somewhat  similar  system,  funds  being  trans- 
ferred from  any  part  of  the  central  bank  sys- 
tem to  any  other  part  merely  by  the  use  of 
checks,  and  without  charge  in  some  instances, 
and  with  only  a slight  charge  in  all  other 
cases.  In  the  United  States  the  privately 
owned  banks  are  being  unified  for  the  cheap 
transfer  of  funds.  This  is  likely  to  become  so 
important  after  a time  that  practically  all  banks 
will  find  it  necessary  to  become  members  of  the 
Federal  Clearing  House. 

PROBABLE  VOLUME  OF  GOLD 

The  volume  of  gold  in  this  country  will  be 
under  the  control  of  the  Federal  Reserve  Board. 
By  raising  the  interest  rate  for  rediscounts  the 
tendency  will  be  to  depress  the  prices  of  prod- 
ucts and  thus  attract  gold  to  this  country; 
and  vice  versa.  But  the  aim,  doubtless,  will  be 
to  secure  stability  in  the  purchasing  power  of 
money,  as  that  is  the  thing  of  most'  importance 


LAW  AFFECTS  ME 


15 


to  us  at  this  time.  We  have  an  immense  volume 
of  gold  in  this  country,  and,  if  stable  money 
shall  be  the  aim,  then  the  volume  of  our  gold 
will  increase.  Should  the  volume  of  gold  com- 
ing from  the  mines  become  too  large,  an  effi- 
cient remedy  will  be  for  the  gold  standard 
countries  to  reduce  somewhat  the  mint  price; 
that  is,  in  place  of  the  existing  price  of  $18.60 
per  troy  ounce,  nine-tenths  fine,  the  price  can 
be  reduced  to  the  extent  required  by  the  then- 
existing  conditions.  The  self-interest  of  the 
gold  standard  countries  would  cause  them  to 
take  this  needed  step. 

STABILITY  IN  BANK-CREDIT  STRUCTURE 

The  effect  of  the  elastic  volume  of  money 
properly  controlled  will  be  that  the  bank-credit 
structure  of  the  country  will  become  stable,  the 
/olume  of  credits  ebbing  and  flowing  with  the 
changes  in  the  demand  for  a medium  of  ex- 
change. This  stability  in  the  bank-credit  struc- 
ture under  the  new  system  will  be  of  inestim- 
able value. 


PARTIAL  SOLUTION  OF  HIGH  COST  OF 
LIVING 

Of  immediate  and  great  interest  to  each  citi- 
zen is  the  fact  that,  should  the  Federal  Reserve 
Board  bring  about  stability  in  the  purchasing 


16 


HOW  THE  NEW  CURRENCY 


power  of  money,  then  one  of  the  chief  elements 
in  the  high  cost  of  living  will  have  been  elim- 
inated. The  purchasing  power  of  money  is 
shown  in  the  prices  of  the  products  which 
money  purchases,  and  one  of  the  troubles  has 
been  that  undue  inflation  in  the  volume  of 
money  has  gradually  raised  the  average  of 
prices  for  products,  while  wages  and  many 
other  forms  of  incomes  have  lagged  behind. 
If  the  average  of  prices  for  products  shall  be 
kept  stable  through  the  proper  control  of  the 
interest  rate  for  rediscounts,  then  wages  and 
other  forms  of  income  will  become  adjusted. 


HIGH  INTEREST  RATES  PROBABLE 

Doubtless  a high  interest  rate  will  exist  for 
several  years.  To-day  there  are  vast  demands 
for  liquid  capital  (as  distinguished  from  fixed 
capital),  and,  therefore,  the  immediate  interest 
rate  for  money  and  credit  for  the  purchase  of 
this  liquid  capital  must  be  high  enough  to  suffi- 
ciently restrict  the  output  of  money  and  credit, 
otherwise  there  would  be  inflation — a rise  in  the 
price  level  for  products. 

Labor  is  not  classed  as  a product.  Wages  are 
likely  to  rise  considerably.  The  way  that  the 
high  cost  of  living  will  become  normal  will  be 
for  wages  to  rise  while  the  average  of  prices 
of  the  things  purchased  with  wages  remains 
stable. 


LAW  AFFECTS  ME 


17 


EFFECT  OF  ABOLISHING  TRUST  PRICES 

The  effect  of  abolishing  trust  prices — monop- 
oly prices — will  be  for  the  prices  in  those  par- 
ticular lines  to  become  normal.  For  example, 
the  termination  of  trust  prices  for  meats  will 
lower  the  price  of  meats  to  the  consumers  and 
raise  the  price  of  live  stock  to  the  stockraisers. 

Also,  in  proportion  as  trust  prices  to  con- 
sumers are  terminated  it  will  tend  to  leave 
more  money  in  the  pockets  of  the  consumers 
for  the  purchase  of  other  things,  which  would 
mean  slightly  higher  prices,  or  the  purchase  of 
more  commodities,  or  more  leisure. 

These  facts  are  given  to  outline  the  probable 
course  of  prices  if  events  shall  demonstrate  that 
the  people  are  actually  back  in  power. 

A BANK  OF  BANKS 

The  eight  or  more  Federal  Reserve  banks 
are  to  deal  only  with  the  banks  of  deposit 
— the  banks  that  receive  the  people’s  deposits. 
In  brief,  the  Federal  Reserve  system  is  to  be  a 
“bank  of  banks.”  But  the  beneficial  effects 
will  be  felt  by  every  citizen  in  the  ways  we 
have  pointed  out.  However,  this  can  not  be 
seen  by  reading  the  new  law,  for  in  no  way 
does  it  attempt  to  describe  the  far-reaching 
results.  But  in  order  that  a citizen  shall  be 
well  posted  he  should  at  least  read  the  new 
law  and  the  explanatory  notes  herewith  given, 


18 


THE  NEW  CURRENCY  LAW 


together  with  the  all-important  information  set 
forth  in  this  introductory  chapter  and  in  Part 
III. 

Doubtless  it  will  be  March  1,  at  least,  before 
any  of  the  Federal  Reserve  banks  will  have 
been  sufficiently  organized  to  begin  operations. 

In  the  meantime  the  Secretary  of  the  Treasury 
will  be  in  control  of  the  price  level  through  his 
control  of  the  Treasury’s  money  in  the  National 
Banks  and  in  the  Treasury.  Last  autumn  he 
prevented  a stringency  in  the  money  market, 
and  now  he  may  confidently  be  relied  upon  to 
prevent  inflation. 


PART  II 


FEDERAL  RESERVE  ACT 
(Owen-Glass  Act) 

Approved  December  23,  1913 

An  Act  to  provide  for  the  establishment  of 
Federal  reserve  banks,  to  furnish  an  elastic  cur- 
rency, to  afford  means  of  rediscounting  commer- 
cial paper,  to  establish  a more  effective  super- 
vision of  banking  in  the  United  States,  and  for 
other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of 
Representatives  of  the  United  States  of  Ameri- 
ca in  Congress  assembled,  That  the  short  title  of 
this  Act  shall  be  the  ‘ i Federal  Reserve  Act.” 

Wherever  the  word  “bank”  is  used  in  this 
Act,  the  word  shall  be  held  to  include  State 
bank,  banking  association,  and  trust  company, 
except  where  national  banks  or  Federal  reserve 
banks  are  specifically  referred  to. 

The  terms  “national  bank”  and  “national 
banking  association”  used  in  this  Act  shall  be 
held  to  be  synonymous  and  interchangeable. 
The  term  “member  bank”  shall  be  held  to 
mean  any  national  bank,  State  bank,  or  bank 
or  trust  company  which  has  become  a member 
of  one  of  the  reserve  banks  created  by  this 
19 


20 


HOW  THE  NEW  CURRENCY 


Act.  The  term  “board”  shall  be  held  to  mean 
Federal  Reserve  Board;  the  term  “district” 
shall  be  held  to  mean  Federal  reserve  district; 
the  term  “reserve  bank”  shall  be  held  to  mean 
Federal  reserve  bank. 

FEDERAL  RESERVE  DISTRICTS 

Sec.  2.  As  soon  as  practicable,  the  Secre- 
tary of  the  Treasury,  the  Secretary  of  Agri- 
culture and  the  Comptroller  of  the  Currency, 
acting  as  1 1 The  Reserve  Bank  Organization 
Committee,”  shall  designate  not  less  than  eight 
nor  more  than  twelve  cities  to  be  known  as 
Federal  reserve  cities,  and  shall  divide  the  con- 
tinental United  States,  excluding  Alaska,  into 
districts,  each  district  to  contain  only  one  of 
such  Federal  reserve  cities.  The  determination 
of  said  organization  committee  shall  not  be  sub- 
ject to  review  except  by  the  Federal  Reserve 
Board  when  organized:  Provided,  That  the  dis- 
tricts shall  be  apportioned  with  due  regard  to 
the  convenience  and  customary  course  of  busi- 
ness and  shall  not  necessarily  be  coterminous 
with  any  State  or  States.  The  districts  thus 
created  may  be  readjusted  and  new  districts 
may  from  time  to  time  be  created  by  the  Federal 
Reserve  Board,,  not  to  exceed  twelve  in  all. 
Such  districts  shall  be  known  as  Federal  reserve 
districts  and  may  be  designated  by  number. 
A maj.ority.of  the  organizatipm  committee  shall 
constitute  a quorum  with  authority  to  act. 


LAW  AFFECTS  ME 


21 


Said  organization  committee  shall  be  author- 
ized to  employ  counsel  and  expert  aid,  to  take 
testimony,  to  send  for  persons  and  papers,  to 
administer  oaths,  and  to  make  such  investiga- 
tion as  may  be  deemed  necessary  by  the  said 
committee  in  determining  the  reserve  districts 
and  in  designating  the  cities  within  such  dis- 
tricts where  such  Federal  reserve  banks  shall 
be  severally  located.  The  said  committee  shall 
supervise  the  organization  in  each  of  the  cities 
designated  of  a Federal  reserve  bank,  which 
shall  include  in  its  title  the  name  of  the  city 
in  which  it  is  situated,  as  “ Federal  Reserve 
Bank  of  Chicago.” 

Under  regulations  to  be  prescribed  by  the 
organization  committee,  every  national  banking 
association  in  the  United  States  is  hereby  re- 
quired, and  every  eligible  bank  in  the  United 
States  and  every  trust  company  within  the  Dis- 
trict of  Columbia,  is  hereby  authorized  to  sig- 
nify in  writing,  within  sixty  days  after  the  pas- 
sage of  this  Act,  its  acceptance  of  the  terms 
and  provisions  hereof.  When  the  organization 
committee  shall  have  designated  the  cities  in 
which  Federal  reserve  banks  are  to  be  organ- 
ized, and  fixed  the  geographical  limits  of  the 
Federal  reserve  districts,  every  national  bank- 
ing association  within  that  district  shall  be  re- 
quired, within  thirty  days  after  notice  from  the 
organization  committee,  to  subscribe  to  the 
capital  stock  of  such  Federal  reserve  bank  in 
a sum  equal  to  six  per  centum  of  the  paid-up 


22 


HOW  THE  NEW  CURRENCY 


capital  stock  and  surplus  of  such  bank,*  one- 
sixth  of  the  subscription  to  be  payable  on  call  of 

1 SUBSCRIPTIONS  TO  THE'  CAPITAL, 
STOCK. — The  banks  of  deposit,  that  is,  the  banks 
doing-  business  with  the  public,  are  to  subscribe 
for  the  capital  stock  in  the  reserve  banks,  because 
through  the  ownership  of  the  capital  stock  the 
control  of  the  corporation  is  determined. 

The  reason  for  the  ownership  and  control  of  the 
reserve  banks  by  the  banks  of  deposit  is  that  the 
reserve  bank  in  each  district  is  to  do  business 
only  with  the  said  banks  of  deposit,  and  so 
these  banks  of  deposit  are  to  own  and  operate  the 
reserve  banks.  In  other  words,  in  place  of  the 
system  of  reserve  banks  privately  owned,  such  as 
existed  in  this  country  up  to  the  time  of  the  pas- 
sage of  this  Federal  Reserve  Act,  which  system 
conferred  tremendous  power  upon  the  few  who 
directed  them,  there  is  to  be  a system  of  Co- 
Operative  Reserve  Banks,  fully  owned  and  oper- 
ated by  the  National  banks  and  such  other  banks 
as  shall  join  the  system.  Furthermore,  in  place 
of  three  central  reserve  cities  in  which  the  bank 
reserves  have  been  pyramided  and  largely  loaned 
on  “call,”  resulting  in  stock  gambling,  there  is 
to  be  a Co-Operative  Reserve  bank  in  each  sec- 
tion of  the  country,  with  no  more  “call”  loan 
business. 

At  the  time  of  the  framing  of  the  above  pro- 
vision for  ownership  of  the  reserve  banks  by  the 
banks  that  are  to  use  them  for  the  loaning  of 
their  own  money  to  themselves,  the  opposition  to 
the  majority  in  Congress  urged  that  the  control 
be  placed  in  appointees  of  the  Government,  but 
the  majority  stated  that  the  loaning  of  the  hun- 
dreds of  millions  of  dollars  which  it  is  expected  will 
be  placed  in  these  reserve  banks  should  be  by  the 
representatives  of  those  whose  money  is  to  be 
loaned.  This  is  sound  reasoning.  The  National 
banks  simply  would  not  and  could  not  be  expected 
to  place  in  Government  appointees  the  loaning 
of  their  funds,  any  more  than  they  would  have 
placed  their  money  in  the  national  banking  sys- 
tem had  it  been  proposed  that  the  Government 
should  appoint  a majority  of  the  members  of 
the  boards  of  directors  of  the  National  banks. 
The  National  banking  system  is  that  the  public 
interests  are  cared  for  through  regulations  in 
the  law  and  continuous  supervision  by  the  Comp- 
troller of  the  Currency  and  his  staff;  and  so  the 
public  interests  in  the  Federal  Reserve  system 


LAW  AFFECTS  ME 


23 


the  organization  committee  or  of  the  Federal 
Reserve  Board,  one-sixth  within  three  months 
and  one-sixth  within  six  months  thereafter,  and 
the  remainder  of  the  subscription,  or  any  part 
thereof,  shall  be  subject  to  call  when  deemed 
necessary  by  the  Federal  Reserve  Board,  said 
payments  to  be  in  gold  or  gold  certificates. 

The  shareholders  of  every  Federal  reserve 
bank  shall  be  held  individually  responsible, 
equally  and  ratably,  and  not  one  for  another, 
for  all  contracts,  debts,  and  engagements  of 
such  bank  to  the  extent  of  the  amount  of  their 
subscriptions  to  such  stock  at  the  par  value 
thereof  in  addition  to  the  amount  subscribed, 
whether  such  subscriptions  have  been  paid  up 
in  whole  or  in  part,  under  the  provisions  of 
this  Act. 

Any  national  bank  failing  to  signify  its  ac- 

are  to  be  cared  for  through  (1)  minute  regulations 
in  the  law;  (2)  a continuous  supervision  by  the 
Federal  Reserve  Board  of  seven  members,  all  of 
whom  are  to  be  appointed  by  the  head  of  the 
Government,  whom  the  people  have  elected;  and 
(3)  representation  by  the  Federal  Government  on 
each  board  of  directors  of  the  reserve  banks. 
The  Federal  Government  is  to  deposit  its  ready 
money  with  these  reserve  banks  and  the  amount 
will  be  about  one-third  of  the  total  deposits  and 
capital  of  the  said  reserve  banks,  and  this  entitles 
the  government  to  one-third  of  the  representa- 
tion on  the  board  of  directors  of  the  reserve 
banks.  The  system  is  strictly  co-operative,  ex- 
cept that  the  Government  has  provided  that,  for 
a reason  hereafter  to  appear  the  banks  that  place 
their  deposits  with  the  reserve  bank  shall  receive 
nothing  directly  for  the  use  of  these  deposits  by 
the  reserve  bank.  Thus,  the  use  of  something 
like  $400,000,000  yearly  will  be  given  to  the  Gov- 
ernment, thereby  reducing  the  people’s  taxes  to 
the  extent  that  profits  are  derived  from  the  $400,- 
000,000  of  deposits — a vast  sum. 


24 


HOW  THE  NEW  CURRENCY 


ceptance  of  the  terms  of  this  Act  within  the 
sixty  days  aforesaid  shall  cease  to  act  as  a re- 
serve agent,  upon  thirty  days’  notice,  to  be 
given  within  the  discretion  of  the  said  organi- 
zation committee  or  of  the  Federal  Reserve 
Board. 

Should  any  national  banking  association  in 
the  United  States  now  organized  fail  within  one 
year  after  the  passage  of  this  Act  to  become  a 
member  bank  or  fail  to  comply  with  any  of 
the  provisions  of  this  Act  applicable  thereto,  all 
of  the  rights,  privileges,  and  franchises  of  such 
association  granted  to  it  under  the  national- 
bank  Act,  or  under  the  provisions  of  this  Act, 
shall  be  thereby  forfeited.  Any  noncompliance 
with  or  violation  of  this  Act  shall,  however,  be 
determined  and  adjudged  by  any  court  of  the 
United  States  of  competent  jurisdiction  in  a 
suit  brought  for  that  purpose  in  the  district 
or  territory  in  which  such  bank  is  located,  under 
direction  of  the  Federal  Reserve  Board,  by 
the  Comptroller  of  the  Currency  in  his  own  name 
before  the  association  shall  be  declared  dis- 
solved. In  cases  of  such  noncompliance  or  vio- 
lation, other  than  the  failure  to  become  a mem- 
ber bank  under  the  provisions  of  this  Act,  every 
director  who  participated  in  or  assented  to  the 
same  shall  be  held  liable  in  his  personal  or 
individual  capacity  for  all  damages  which  said 
bank,  its  shareholders,  or  any  other  person  shall 
have  sustained  in  consequence  of  such  viola- 
tion. 


LAW  AFFECTS  ME 


25 


Such  dissolution  shall  not  take  away  or  impair 
any  remedy  against  such  corporation,  its  stock- 
holders or  officers,  for  any  liability  or  penalty 
which  shall  have  been  previously  incurred. 

Should  the  subscriptions  by  banks  to  the  stock 
of  said  Federal  reserve  banks  or  any  one  or 
more  of  them  be,  in  the  judgment  of  the  or- 
ganization committee,  insufficient  to  provide  the 
amount  of  capital  required  therefor,  then  and 
in  that  event  the  said  organization  committee 
may,  under  conditions  and  regulations  to  be 
prescribed  by  it,  offer  to  public  subscription  at 
par  such  an  amount  of  stock  in  said  Federal 
reserve  banks,  or  any  one  or  more  of  them,  as 
said  committee  shall  determine,  subject  to  the 
same  conditions  as  to  payment  and  stock  lia- 
bility as  provided  for  member  banks. 

No  individual,  copartnership,  or  corporation 
other  than  a member  bank  of  its  district  shall 
be  permitted  to  subscribe  for  or  to  hold  at  any 
time  more  than  $25,000  par  value  of  stock  in 
any  Federal  reserve  bank.  Such  stock  shall 
be  known  as  public  stock  and  may  be  trans- 
ferred on  the  books  of  the  Federal  reserve 
bank  by  the  chairman  of  the  board  of  directors 
of  such  bank. 

Should  the  total  subscriptions  by  banks  and 
the  public  to  the  stock  of  said  Federal  reserve 
banks,  or  any  one  or  more  of  them,  be,  in  the 
judgment  of  the  organization  committee,  in- 
sufficient to  provide  the  amount  of  capital  re- 
quired therefor,  then  and  in  that  event  the  said 


26 


HOW  THE  NEW  CURRENCY 


organization  committee  shall  allot  to  the  United 
States  such  an  amount  of  said  stock  as  said 
committee  shall  determine.  Said  United  States 
stock  shall  be  paid  for  at  par  out  of  any  money 
in  the  Treasury  not  otherwise  appropriated, 
and  shall  be  held  by  the  Secretary  of  the  Treas- 
ury and  disposed  of  for  the  benefit  of  the 
United  States  in  such  manner,  at  such  times, 
and  at  such  price,  not  less  than  par,  as  the 
Secretary  of  the  Treasury  shall  determine. 

Stock  not  held  by  member  banks  shall  not 
be  entitled  to  voting  power. 

The  Federal  Reserve  Board  is  hereby  em- 
powered to  adopt  and  promulgate  rules  and 
regulations  governing  the  transfers  of  said 
stock. 

No  Federal  reserve  bank  shall  commence 
business  with  a subscribed  capital  of  less  than 
$4,000,000.  The  organization  of  reserve  dis- 
tricts and  Federal  reserve  cities  shall  not  be 
construed  as  changing  the  present  status  of 
reserve  cities  and  central  reserve  cities,  except 
in  so  far  as  this  Act  changes  the  amount  of 
reserves  that  may  be  carried  with  approved 
reserve  agents  located  therein.  The  organiza- 
tion committee  shall  have  power  to  appoint  such 
assistants  and  incur  such  expenses  in  carrying 
out  the  provisions  of  this  Act  as  it  shall  deem 
necessary,  and  such  expenses  shall  be  payable 
by  the  Treasurer  of  the  United  States  upon 
voucher  approved  by  the  Secretary  of  the  Treas- 
ury, and  the  sum  of  $100,000,  or  so  much  thereof 


LAW  AFFECTS  ME 


27 


as  may  be  necessary,  is  hereby  appropriated, 
out  of  any  moneys  in  the  Treasury  not  other- 
wise appropriated,  for  the  payment  of  such  ex- 
penses. 

BRANCH  OFFICES 

Sec.  3.  Each  Federal  reserve  bank  shall  es- 
tablish branch  banks  within  the  Federal  reserve 
district  in  which  it  is  located  and  may  do  so 
in  the  district  of  any  Federal  reserve  bank 
which  may  have  been  suspended.  Such  branches 
shall  be  operated  by  a board  of  directors  under 
rules  and  regulations  approved  by  the  Federal 
Reserve  Board.  Directors  of  branch  banks  shall 
possess  the  same  qualifications  as  directors  of 
the  Federal  reserve  banks.  Four  of  said  direc- 
tors shall  be  selected  by  the  reserve  bank  and 
three  by  the  Federal  Reserve  Board,  and  they 
shall  hold  office  during  the  pleasure,  respec- 
tively, of  the  parent  bank  and  the  Federal  Re- 
serve Board.  The  reserve  bank  shall  designate 
one  of  the  directors  as  manager. 

FEDERAL  RESERVE  BANKS 

Sec.  4.  When  the  organization  committee 
shall  have  established  Federal  reserve  districts 
as  provided  in  section  two  of  this  Act,  a certifi- 
cate shall  be  filed  with  the  Comptroller  of  the 
Currency  showing  the  geographical  limits  of 
such  districts  and  the  Federal  reserve  city  des- 
ignated in  each  of  such  districts.  The  Comp- 
troller of  the  Currency  shall  thereupon  cause 


28 


HOW  THE  NEW  CURRENCY 


to  be  forwarded  to  each  national  bank  located 
in  each  district,  and  to  such  other  banks  de- 
clared to  be  eligible  by  the  organization  com- 
mittee which  may  apply  therefor,  an  applica- 
tion blank  in  form  to  be  approved  by  the  or- 
ganization committee,  which  blank  shall  con- 
tain a resolution  to  be  adopted  by  the  board 
of  directors  of  each  bank  executing  such  appli- 
cation, authorizing  a subscription  to  the  capital 
stock  of  the  Federal  reserve  bank  organizing  in 
that  district  in  accordance  with  the  provisions 
of  this  Act. 

When  the  minimum  amount  of  capital  stock 
prescribed  by  this  Act  for  the  organization  of 
any  Federal  reserve  bank  shall  have  been  sub- 
scribed and  allotted,  the  organization  commit- 
tee shall  designate  any  five  banks  of  those 
whose  applications  have  been  received  to  exe- 
cute a certificate  of  organization,  and  there- 
upon the  banks  so  designated  shall,  under  their 
seals,  make  an  organization  certificate  which 
shall  specifically  state  the  name  of  such  Federal 
reserve  bank,  the  territorial  extent  of  the  dis- 
trict over  which  the  operations  of  such  Federal 
reserve  bank  are  to  be  carried  on,  the  city  and 
State  in  which  said  bank  is  to  be  located,  the 
amount  of  capital  stock  and  the  number  of 
shares  into  which  the  same  is  divided,  the  name 
and  place  of  doing  business  of  each  bank  ex- 
ecuting such  certificate,  and  cf  all  banks  which 
have  subscribed  to  the  capital  stock  of  such 
Federal  reserve  bank  and  the  number  of  shares 


LAW  AFFECTS  ME 


29 


subscribed  by  each,  and  the  fact  that  the  certifi- 
cate is  made  to  enable  those  banks  executing 
same,  and  all  banks  which  have  subscribed  or 
may  thereafter  subscribe  to  the  capital  stock 
of  such  Federal  reserve  bank,  to  avail  them- 
selves of  the  advantages  of  this  Act. 

The  said  organization  certificate  shall  be 
acknowledged  before  a judge  of  some  court  of 
record  or  notary  public;  and  shall  be,  together 
with  the  acknowledgment  thereof,  authenticated 
by  the  seal  of  such  court,  or  notary,  transmitted 
to  the  Comptroller  of  the  Currency,  who  shall 
file,  record  and  carefully  preserve  the  same  in 
his  office. 

Upon  the  filing  of  such  certificate  with  the 
Comptroller  of  the  Currency  as  aforesaid,  the 
said  Federal  reserve  bank  shall  become  a body 
corporate  and  as  such,  and  in  the  name  desig- 
nated in  such  organization  certificate,  shall  have 
power — 

First.  To  adopt  and  use  a corporate  seal. 

Second.  To  have  succession  for  a period  of 
twenty  years  from  its  organization  unless  it  is 
sooner  dissolved  by  an  Act  of  Congress,  or  un- 
less its  franchise  becomes  forfeited  by  some 
violation  of  law. 

Third.  To  make  contracts. 

Fourth.  To  sue  and  be  sued,  complain  and 
defend,  in  any  court  of  law  or  equity. 

Fifth.  To  appoint,  by  its  board  of  directors, 
such  officers  and  employees  as  are  not  other- 
wise provided  for  in  this  Act,  to  define  their 


30 


HOW  THE  NEW  CURRENCY 


duties,  require  bonds  of  them  and  fix  the  pen- 
alty thereof,  and  to  dismiss  at  pleasure  such 
officers  or  employees. 

Sixth.  To  prescribe,  by  its  board  of  directors, 
by-laws  not  inconsistent  with  law,  regulating 
the  manner  in  which  its  general  business  may 
be  conducted,  and  the  privileges  granted  to  it 
by  law  may  be  exercised  and  enjoyed. 

Seventh.  To  exercise  by  its  board  of  directors, 
or  duly  authorized  officers  or  agents,  all  powers 
specifically  granted  by  the  provisions  of  this 
Act  and  such  incidental  powers  as  shall  be 
necessary  to  carry  on  the  business  of  banking 
within  the  limitations  prescribed  by  this  Act. 

Eighth.  Upon  deposit  with  the  Treasurer  of 
the  United  States  of  any  bonds  of  the  United 
States  in  the  manner  provided  by  existing  law 
relating  to  national  banks,  to  receive  from  the 
Comptroller  of  the  Currency  circulating  notes  in 
blank,  registered  and  countersigned  as  provided 
by  law,  equal  in  amount  to  the  par  value  of 
the  bonds  so  deposited,  such  notes  to  be  issued 
under  the  same  conditions  and  provisions  of  law 
as  relate  to  the  issue  of  circulating  notes  of 
national  banks  secured  by  bonds  of  the  United 
States  bearing  the  circulating  privilege,  except 
that  the  issue  of  such  notes  shall  not  be  limited 
to  the  capital  stock  of  such  Federal  reserve 
bank.* 

a RETIREMENT  OF  BANK  NOTES— MAIN- 
TENANCE AT  PAR  OF  2 PER  CENT.  BONDS.— 
This  provision  is  to  be  read  in  connection  with 
section  18. 


LAW  AFFECTS  ME 


31 


But  no  Federal  reserve  bank  shall  transact 
any  business  except  such  as  is  incidental  and 
necessarily  preliminary  to  its  organization  until 
it  has  been  authorized  by  the  Comptroller  of 
the  Currency  to  commence  business  under  the 
provisions  of  this  Act. 

Every  Federal  reserve  bank  shall  be  con- 
ducted under  the  supervision  and  control  of  a 
board  of  directors. 

The  board  of  directors  shall  perform  the  du- 
ties usually  appertaining  to  the  office  of  direc- 
tors of  banking  associations  and  all  such  duties 
as  are  prescribed  by  law. 

Said  board  shall  administer  the  affairs  of 
said  bank  fairly  and  impartially  and  without 
discrimination  in  favor  of  or  against  any  member 
bank  or  banks  and  shall,  subject  to  the  provi- 
sions of  law  and  the  orders  of  the  Federal  Re- 
serve Board,  extend  to  each  member  bank  such 
discounts,  advancements  and  accommodations  as 
may  be  safely  and  reasonably  made  with  due 
regard  for  the  claims  and  demands  of  othef 
member  banks. 

Such  board  of  directors  shall  be  selected  as 
hereinafter  specified  and  shall  consist  of  nine 
members,  holding  office  for  three  years,  and 
divided  into  three  classes,  designated  as  classes 
A,  B,  and  G. 

Class  A shall  consist  of  three  members,  who 
shall  be  chosen  by  and  be  representative  of  the 
stock-holding  banks. 

Class  B shall  consist  of  three  members,  who 


32 


HOW  THE  NEW  CURRENCY 


at  the  time  of  their  election  shall  he  actively 
engaged  in  their  district  in  commerce,  agricul- 
ture or  some  other  industrial  pursuit. 

Class  C shall  consist  of  three  members  who 
shall  he  designated  hy  the  Federal  Reserve 
Board.  When  the  necessary  subscriptions  to  the 
capital  stock  have  been  obtained  for  the  or- 
ganization of  any  Federal  reserve  bank,  the 
Federal  Reserve  Board  shall  appoint  the  class 
C directors  and  shall  designate  one  of  such  di- 
rectors as  chairman  of  the  board  to  be  selected. 
Pending  the  designation  of  such  chairman,  the 
organization  committee  shall  exercise  the  powers 
and  duties  appertaining  to  the  office  of  chairman 
in  the  organization  of  such  Federal  reserve 
bank. 

No  Senator  or  Representative  in  Congress 
shall  be  a member  of  the  Federal  Reserve  Board 
or  an  officer  or  a director  of  a Federal  reserve 
bank. 

No  director  of  class  B shall  be  an  officer,  di- 
rector, or  employee  of  any  bank. 

No  director  of  class  C shall  be  an  officer,  di- 
rector, employee,  or  stockholder  of  any  bank. 

Directors  of  class  A and  class  B 3 shall  he 
chosen  in  the  following  manner: 

The  chairman  of  the  board  of  directors  of 
the  Federal  reserve  bank  of  the  district  in 

3 CONTROL  OF  RESERVE  BANKS  BY 
MEMBER  BANKS. — The  three  directors  of  the 
reserve  banks  in  class  B are  to  be  elected  by  the 
member  banks,  and  the  reasons  therefor  are  stated 
in  note  1,  page  22. 


LAW  AFFECTS  ME 


33 


which  the  bank  is  situated  or,  pending  the  ap- 
pointment of  such  chairman,  the  organization 
committee  shall  classify  the  member  banks  of 
the  district  into  three  general  groups  or  divi- 
sions. Each  group  shall  contain  as  nearly  as 
may  be  one-third  of  the  aggregate  number  of 
the  member  banks  of  the  district  and  shall  con- 
sist, as  nearly  as  may  be,  of  banks  of  similar 
capitalization.  The  groups  shall  be  designated 
by  number  by  the  chairman. 

At  a regularly  called  meeting  of  the  board  of 
directors  of  each  member  bank  in  the  district 
it  shall  elect  by  ballot  a district  reserve  elector 
and  shall  certify  his  name  to  the  chairman  of 
the  board  of  directors  of  the  Federal  reserve 
bank  of  the  district.  The  chairman  shall  make 
lists  of  the  district  reserve  electors  thus  named 
by  banks  in  each  of  the  aforesaid  three  groups 
and  shall  transmit  one  list  to  each  elector  in 
each  group. 

Each  member  bank  shall  be  permitted  to 
nominate  to  the  chairman  one  candidate  for 
director  of  class  A and  one  candidate  for  di- 
rector of  class  B.  The  candidates  so  nominated 
shall  be  listed  by  the  chairman,  indicating  by 
whom  nominated,  and  a copy  of  said  list  shall, 
within  fifteen  days  after  its  completion,  be  fur- 
nished by  the  chairman  to  each  elector. 

Every  elector  shall,  within  fifteen  days  after 
the  receipt  of  the  said  list,  certify  to  the  chair- 
man his  first,  second,  and  other  choices  of  a 
director  of  class  A and  class  B,  respectively, 


34 


HOW  THE  NEW  CURRENCY 


upon  a preferential  ballot,  on  a form  furnished 
by  the  chairman  of  the  board  of  directors  of 
the  Federal  reserve  bank  of  the  district.  Each 
elector  shall  make  a cross  opposite  the  name 
of  the  first,  second,  and  other  choices  for  a 
director  of  class  A and  for  a director  of  class 
B,  but  shall  not  vote  more  than  one  choice  for 
any  one  candidate. 

Any  candidate  having  a majority  of  all  votes 
cast  in  the  column  of  first  choice  shall  be  de- 
clared elected.  If  no  candidate  have  a majority 
of  all  the  votes  in  the  first  column,  then  there 
shall  be  added  together  the  votes  cast  by  the 
electors  for  such  candidates  in  the  second  col- 
umn and  the  votes  cast  for  the  several  candi- 
dates in  the  first  column.  If  any  candidate 
then  have  a majority  of  the  electors  voting, 
by  adding  together  the  first  and  second  choices, 
he  shall  be  declared  elected.  If  no  candidate 
have  a majority  of  electors  voting  when  the 
first  and  second  choices  shall  have  been  added, 
then  the  votes  cast  in  the  third  column  for 
other  choices  shall  be  added  together  in  like 
manner,  and  the  candidate  then  having  the 
highest  number  of  votes  shall  be  declared 
elected.  An  immediate  report  of  election  shall 
be  declared. 

Class  C directors  shall  be  appointed  by  the 
Federal  Reserve  Board.  They  shall  have  been 
for  at  least  two  years  residents  of  the  district 
for  which  they  are  appointed,  one  of  whom 
shall  be  designated  by  said  board  as  chairman 


LAW  AFFECTS  ME 


35 


of  the  hoard  of  directors  of  the  Federal  reserve 
hank  and  as  “Federal  reserve  agent."  Ho 
shall  he  a person  of  tested  hanking  experience; 
and  in  addition  to  his  duties  as  chairman  of 
the  hoard  of  directors  of  the  Federal  reserve 
hank4  he  shall  he  required  to  maintain  under 
regulations  to  he  established  hy  the  Federal  Re- 
serve Board  a local  office  of  said  hoard  on  the 
premises  of  the  Federal  reserve  hank.  He  shall 
make  regular  reports  to  the  Federal  Reserve 
Board,  and  shall  act  as  its  official  representative 
for  the  performance  of  the  functions  conferred 
upon  it  hy  this  Act.  He  shall  receive  an  annual 
compensation  to  be  fixed  by  the  Federal  Re- 
serve Board  and  paid  monthly  by  the  Federal 
reserve  bank  to  which  he  is  designated.  One 
of  the  directors  of  class  C,  who  shall  be  a per- 
son of  tested  banking  experience,  shall  be  ap- 
pointed by  the  Federal  Reserve  Board  as  deputy 
chairman  and  deputy  Federal  reserve  agent  to 
exercise  the  powers  of  the  chairman  of  the 
board  and  Federal  reserve  agent  in  case  of  ab- 
sence or  disability  of  his  principal. 

Directors  of  Federal  reserve  banks  shall  re- 

1 CHAIRMAN  OF  BOARD  OF  DIRECTORS.— 
The  chairman  of  the  board  of  directors  of  each 
of  the  reserve  banks  will  be  an  appointee  of  the 
Government,  along  with  two  other  directors  thus 
appointed,  while  the  member  banks  will  have 
elected  six  of  the  nine  members  of  the  board, 
thereby  giving  them  control  when  a vote  is  taken, 
while  the  Government,  through  its  naming  of  the 
chairman,  will  be  sure  that  questions  proposed 
by  the  minority  will  be  put  to  a vote,  and  that 
proper  debate  will  be  allowed  by  the  chairman; 
also  that  proper  records  will  be  kept. 


36 


HOW  THE  NEW  CURRENCY 


ceive,  in  addition  to  any  compensation  other- 
wise provided,  a reasonable  allowance  for  neces- 
sary expenses  in  attending  meetings  of  their 
respective  boards,  which  amount  shall  be  paid 
by  the  respective  Federal  reserve  banks.  Any 
compensation  that  may  be  provided  by  boards 
of  directors  of  Federal  reserve  banks  for 
directors,  officers,  or  employees  shall  be  subject 
to  the  approval  of  the  Federal  Reserve  Board. 

The  Reserve  Bank  Organization  Committee 
may,  in  organizing  Federal  reserve  banks,  call 
such  meetings  of  bank  directors  in  the  several 
districts  as  may  be  necessary  to  carry  out  the 
purposes  of  this  Act,  and  may  exercise  the  func- 
tions herein  conferred  upon  the  chairman  of  the 
board  of  directors  of  each  Federal  reserve  bank 
pending  the  complete  organization  of  such  bank. 

At  the  first  meeting  of  the  full  board  of  di- 
rectors of  each  Federal  reserve  bank  it  shall 
be  the  duty  of  the  directors  of  classes  A,  B, 
and  C,  respectively,  to  designate  one  of  the 
members  of  each  class  whose  term  of  office  shall 
expire  in  one  year  from  the  first  of  January 
nearest  to  date  of  such  meeting,  one  whose  term 
of  office  shall  expire  at  the  end  of  two  years 
from  said  date,  and  one  whose  term  of  office 
shall  expire  at  the  end  of  three  years  from 
said  date.  Thereafter  every  director  of  a Fed- 
eral reserve  bank  chosen  as  hereinbefore  pro- 
vided shall  hold  office  for  a term  of  three  years. 
Vacancies  that  may  occur  in  the  several  classes 
of  directors  of  Federal  reserve  banks  may  be 


LAW  AFFECTS  ME 


37 


filled  in  the  manner  provided  for  the  original 
selection  of  such  directors,  such  appointees  to 
hold  office  for  the  unexpired  terms  of  their 
predecessors. 

STOCK  ISSUES;  INCREASE  AND  DE- 
CREASE OF  CAPITAL 

Sec.  5.  The  capital  stock  of  each  Federal 
reserve  bank  shall  be  divided  into  shares  of 
$100  each.  The  outstanding  capital  stock  shall 
be  increased  from  time  to  time  as  member 
banks  increase  their  capital  stock  and  surplus 
or  as  additional  banks  become  members,  and 
may  be  decreased  as  member  banks  reduce  their 
capital  stock  or  surplus  or  cease  to  be  members. 
Shares  of  the  capital  stock  of  Federal  reserve 
banks  owned  by  member  banks  shall  not  be 
transferred  or  hypothecated.  When  a member 
bank  increases  its  capital  stock  or  surplus,  it 
shall  thereupon  subscribe  for  an  additional 
amount  of  capital  stock  of  the  Federal  reserve 
bank  of  its  district  equal  to  six  per  centum  of 
the  said  increase,  one-half  of  said  subscription 
to  be  paid  in  the  manner  hereinbefore  provided 
for  original  subscription,  and  one-half  subject 
to  call  of  the  Federal  Reserve  Board.  A bank 
applying  for  stock  in  a Federal  reserve  bank  at 
any  time  after  the  organization  thereof  must 
subscribe  for  an  amount  of  the  capital  stock 
of  the  Federal  reserve  bank  equal  to  six  per 
centum  of  the  paid-up  capital  stock  and  surplus 


38 


HOW  THE  NEW  CURRENCY 


of  said  applicant  bank,  paying  therefor  its  par 
value  plus  one-half  of  one  per  centum  a month 
from  the  period  of  the  last  dividend.  When 
the  capital  stock  of  any  Federal  reserve  bank 
shall  have  been  increased  either  on  account  of 
the  increase  of  capital  stock  of  member  banks 
or  on  account  of  the  increase  in  the  number 
of  member  banks,  the  board  of  directors  shall 
cause  to  be  executed  a certificate  to  the  Comp- 
troller of  the  Currency  showing  the  increase 
in  capital  stock,  the  amount  paid  in,  and  by 
whom  paid.  When  a member  bank  reduces  its 
capital  stock  it  shall  surrender  a proportionate 
amount  of  its  holdings  in  the  capital  of  said 
Federal  reserve  bank,  and  when  a member  bank 
voluntarily  liquidates  it  shall  surrender  all  of 
its  holdings  of  the  capital  stock  of  said  Federal 
reserve  bank  and  be  released  from  its  stock  sub- 
scription not  previously  called.  In  either  case 
the  shares  surrendered  shall  be  canceled  and 
the  member  bank  shall  receive  in  payment 
therefor,  under  regulations  to  be  prescribed  by 
the  Federal  Reserve  Board,  a sum  equal  to  its 
cash-paid  subscriptions  on  the  shares  surrend- 
ered and  one-half  of  one  per  centum  a month 
from  the  period  of  the  last  dividend,  not  to 
exceed  the  book  value  thereof,  less  any  liability 
of  such  member  bank  to  the  Federal  reserve 
bank. 

Sec.  6.  If  any  member  bank  shall  be  de- 
clared insolvent  and  a receiver  appointed  there- 
for, the  stock  held  by  it  in  said  Federal  reserve 


LAW  AFFECTS  ME 


39 


bank  shall  be  canceled,  without  impairment  of 
its  liability,  and  all  cash-paid  subscriptions  on 
said  stock,  with  one-half  of  one  per  centum  per 
month  from  the  period  of  last  dividend,  not  to 
exceed  the  book  value  thereof,  shall  be  first 
applied  to  all  debts  of  the  insolvent  member 
bank  to  the  Federal  reserve  bank,  and  the  bal- 
ance, if  any,  shall  be  paid  to  the  receiver  of  the 
insolvent  bank.  Whenever  the  capital  stock  of 
a Federal  reserve  bank  is  reduced,  either  on 
account  of  a reduction  in  capital  stock  of  any 
member  bank  or  of  the  liquidation  or  insol- 
vency of  such  bank,  the  board  of  directors  shall 
cause  to  be  executed  a certificate  to  the  Comp- 
troller of  the  Currency  showing  such  reduction 
of  capital  stock  and  the  amount  repaid  to  such 
bank. 


DIVISION  OF  EARNINGS 

Sec.  7.  After  all  necessary  expenses  of  a 
Federal  reserve  bank  have  been  paid  or  pro- 
vided for,  the  stockholders  shall  be  entitled  to 
receive  an  annual  dividend  of  six  per  centum 
on  the  paid-in  capital  stock,  which  dividend 
shall  be  cumulative^  After  the  aforesaid 


B DIVISION  OF  EARNINGS.— In  connection 
with  the  foregoing  also  observe  that  in  section  19, 
relating  to  the  volume  of  bank  reserves,  the  mem- 
ber banks  are  to  deposit  a vast  amount  of  capital 
with  the  reserve  banks — something  like  $400,000,- 
000,  and  for  this  the  member  banks  are  not  to 
receive  anything  direct — the  net  Interest  to  be 
earned  is  all  to  go  to  reduce  the  people’s  taxes. 
Thus,  although  the  member  banks  are  to  receive 


40 


HOW  THE  NEW  CURRENCY 


dividend  claims  have  been  fully  met,  all  the  net 
earnings  shall  be  paid  to  the  United  States  as  a 
franchise  tax,  except  that  one-half  of  such  net 
earnings  shall  be  paid  into  a surplus  fund  until 
it  shall  amount  to  forty  per  centum  of  the  paid- 
in  capital  stock  of  such  bank. 

The  net  earnings  derived  by  the  United 
States  from  Federal  reserve  banks  shall,  in  the 
discretion  of  the  Secretary,  be  used  to  supple- 
ment the  gold  reserve  held  against  outstanding 
United  States  notes,  or  shall  be  applied  to  the 
reduction  of  the  outstanding  bonded  indebted- 
ness of  the  United  States  under  regulations  to 
be  prescribed  by  the  Secretary  of  the  Treasury. 
Should  a Federal  reserve  bank  be  dissolved  or 
go  into  liquidation,  any  surplus  remaining,  after 
the  payment  of  all  debts,  dividend  requirements 
as  hereinbefore  provided,  and  the  par  value  of 
the  stock,  shall  be  paid  to  and  become  the  prop- 


6 per  cent,  on  the  capital  stock  of  something  like 
$50,000,000,  which  is  to  be  exempt  from  taxation 
by  the  States  and  municipalities,  except  the  real 
estate,  making  the  net  earning  capacity  equal  to 
more  than  7 per  cent,  where  state  and  municipal 
taxation  applies,  yet  the  net  earnings  of  the  mem- 
ber banks  for  their  entire  investment  in  the  re- 
serve banks  are  exceedingly  small.  However,  the 
net  advantages  to  the  member  banks  from  the 
lessening  of  the  volume  of  reserves  required  un- 
der the  improved  system,  and  the  various  other 
advantages,  make  it  reasonably  sure  that  the 
new  system  will  attract  practically  all  of  the 
existing  National  banks — some  7,400 — and  that 
quite  a proportion  of  the  14,500  state  banks  and 
trust  companies  will  join.  It  is  expected  that  in 
the  revision  of  the  National  Bank  Act  that  is  to 
be  undertaken  soon  there  will  be  incorporated  a 
Depositors’  Insurance  Fund,  heretofore  described 
as  the  Guaranty  of  Bank  Deposits. 


LAW  AFFECTS  ME 


41 


erty  of  tlie  United  States  and  shall  be  similarly 
applied. 

Federal  reserve  banks,  including  the  capital 
stock  and  surplus  therein,  and  the  income  de- 
rived therefrom,  shall  be  exempt  from  Federal, 
State,  and  local  taxation,  except  taxes  upon  real 
estate.^ 


STATE  BANKS  MAY  BECOME  NATIONAL 
BANKS 

Sec.  8.  Section  fifty-one  hundred  and  fifty- 
four,  United  States  Kevised  Statutes,  is  hereby 
amended  to  read  as  follows: 

Any  bank  incorporated  by  special  law  of  any 
State  or  of  the  United  States  or  organized 
under  the  general  laws  of  any  State  or  of  the 
United  States  and  having  an  unimpaired  capi- 
tal sufficient  to  entitle  it  to  become  a national 
banking  association  under  the  provisions  of  the 
existing  laws  may,  by  the  vote  of  the  share- 
holders owning  not  less  than  fifty-one  per 
centum  of  the  capital  stock  of  such  bank  or 
banking  association,  with  the  approval  of  the 
Comptroller  of  the  Currency  be  converted  into 
a national  banking  association,  with  any  name 
approved  by  the  Comptroller  of  the  Currency: 

Provided,  however,  That  said  conversion  shall 
not  be  in  contravention  of  the  State  law.  In 

•EXEMPTION  FROM  TAXATION.— The  value 
of  this  exemption  is  more  than  one  per  cent,  per 
year. 


42 


HOW  THE  NEW  CURRENCY 


such  case  the  articles  of  association  and  organi- 
zation certificate  may  be  executed  by  a ma- 
jority of  the  directors  of  the  bank  or  banking 
institution,  and  the  certificate  shall  declare  that 
the  owners  of  fifty-one  per  centum  of  the  capi- 
tal stock  have  authorized  the  directors  to  make 
such  certificate  and  to  change  or  convert  the 
bank  or  banking  institution  into  a national  asso- 
ciation. A majority  of  the  directors,  after  exe- 
cuting the  articles  of  association  and  the  or- 
ganization certificate,  shall  have  power  to  exe- 
cute all  other  papers  and  to  do  whatever  may 
be  required  to  make  its  organization  perfect 
and  complete  as  a national  association.  The 
shares  of  any  such  bank  may  continue  to  be 
for  the  same  amount  each  as  they  were  before 
the  conversion,  and  the  directors  may  continue 
to  be  directors  of  the  association  until  others 
are  elected  or  appointed  in  accordance  with  the 
provisions  of  the  statutes  of  the  United  States. 
When  the  Comptroller  has  given  to  such  bank 
or  banking  association  a certificate  that  the  pro- 
visions of  this  Act  have  been  complied  with, 
such  bank  or  banking  association,  and  all  its 
stockholders,  officers,  and  employees,  shall  have 
the  same  powers  and  privileges,  and  shall  be 
subject  to  the  same  duties,  liabilities,  and  regu- 
lations, in  all  respects,  as  shall  have  been  pre- 
scribed by  the  Federal  Reserve  Act  and  by  the 
national  banking  Act  for  associations  originally 
organized  as  national  banking  associations. 


LAW  AFFECTS  ME 


43 


STATE  BANKS  AS  MEMBERS 

Sec.  9.  Any  bank  incorporated  by  special 
law  of  any  State,  or  organized  under  the  gen- 
eral laws  of  any  State  or  of  the  United  States, 
may  make  application  to  the  reserve  bank  or- 
ganization committee,  pending  organization,  and 
thereafter  to  the  Federal  Reserve  Board  for 
the  right  to  subscribe  to  the  stock  of  the  Fed- 
eral reserve  bank  organized  or  to  be  organized 
within  the  Federal  reserve  district  where  the 
applicant  is  located.  The  organization  com- 
mittee or  the  Federal  Reserve  Board,  under 
such  rules  and  regulations  as  it  may  prescribe, 
subject  to  the  provisions  of  this  section,  may 
permit  the  applying  bank  to  become  a stock- 
holder in  the  Federal  reserve  bank  of  the  dis- 
trict in  which  the  applying  bank  is  located. 
Vvhenever  the  organization  committee  or  the 
Federal  Reserve  Board  shall  permit  the  apply- 
ing bank  to  become  a stockholder  in  the  Fed- 
eral reserve  bank  of  the  district,  stock  shall  be 
issued  and  paid  for  under  the  rules  and  regu- 
lations in  this  Act  provided  for  national  banks 
which  become  stockholders  in  Federal  reserve 
banks. 

The  organization  committee  or  the  Federal 
Reserve  Board  shall  establish  by-laws  for  the 
general  government  of  its  conduct  in  acting 
upon  applications  made  by  the  State  banks  and 
banking  associations  and  trust  companies  for 
stock  ownership  in  Federal  reserve  banks.  Such 


44 


HOW  THE  NEW  CURRENCY 


by-laws  shall  require  applying  banks  not  or- 
ganized under  Federal  law  to  comply  with  the 
reserve  and  capital  requirements  and  to  submit 
to  the  examination  and  regulations  prescribed 
by  the  organization  committee  or  by  the  Fed- 
eral Reserve  Board.  No  applying  bank  shall 
be  admitted  to  membership  in  a Federal  re- 
serve bank  unless  it  possesses  a paid-up  unim- 
paired capital  sufficient  to  entitle  it  to  become 
a national  banking  association  in  the  place 
where  it  is  situated,  under  the  provisions  of  the 
national  banking  Act. 

Any  bank  becoming  a member  of  a Federal 
reserve  bank  under  the  provisions  of  this  sec- 
tion shall,  in  addition  to  the  regulations  and 
restrictions  hereinbefore  provided,  be  required 
to  conform  to  the  provisions  of  law  imposed  on 
the  national  banks  respecting  the  limitation  of 
liability  which  may  be  incurred  by  any  person, 
firm,  or  corporation  to  such  banks,  the  prohibi- 
tion against  making  purchase  of  or  loans  on 
stock  of  such  banks,  and  the  withdrawal  or  im- 
pairment of  capital,  or  the  payment  of  un- 
earned dividends,  and  to  such  rules  and  regu- 
lations as  the  Federal  Reserve  Board  may,  in 
pursuance  thereof,  prescribe. 

Such  banks,  and  the  officers,  agents,  and  em- 
ployees thereof,  shall  also  be  subject  to  the 
provisions  of  and  to  the  penalties  prescribed 
by  sections  fifty-one  hundred  and  ninety-eight, 
fifty-two  hundred,  fifty-two  hundred  and  one, 
fifty-two  hundred  and  eight,  and  fifty-two 


LAW  AFFECTS  ME 


45 


hundred  and  nine  of  the  Revised  Statutes.  The 
member  banks  shall  also  be  required  to  make 
reports  of  the  conditions  and  of  the  payments 
of  dividends  to  the  comptroller,  as  provided  in 
sections  fifty-two  hundred  and  eleven  and  fifty- 
two  hundred  and  twelve  of  the  Revised  Stat- 
utes, and  shall  be  subject  to  the  penalties  pre- 
scribed by  section  fifty-two  hundred  and  thir- 
teen for  the  failure  to  make  such  report. 

If  at  any  time  it  shall  appear  to  the  Federal 
Reserve  Board  that  a member  bank  has  failed 
to  comply  with  the  provisions  of  this  section  or 
the  regulations  of  the  Federal  Reserve  Board, 
it  shall  be  within  the  power  of  the  said  board, 
after  hearing,  to  require  such  bank  to  surrender 
its  stock  in  the  Federal  reserve  bank;  upon 
such  surrender  the  Federal  reserve  bank  shall 
pay  the  cash-paid  subscriptions  to  the  said  stock 
with  interest  at  the  rate  of  one-half  of  one 
per  centum  per  month,  computed  from  the  last 
dividend,  if  earned,  not  to  exceed  the  book 
value  thereof,  less  any  liability  to  said  Federal 
reserve  bank,  except  the  subscription  liability 
not  previously  called,  which  shall  be  canceled, 
and  said  Federal  reserve  bank  shall,  upon  no- 
tice from  the  Federal  Reserve  Board,  be  re- 
quired to  suspend  said  bank  from  further  priv- 
ileges of  membership,  and  shall  within  thirty 
days  of  such  notice  cancel  and  retire  its  stock 
and  make  payment  therefor  in  the  manner  here- 
in provided.  The  Federal  Reserve  Board  may 
restore  membership  upon  due  proof  of  com- 


46 


HOW  THE  NEW  CURRENCY 


pliance  with  the  conditions  imposed  by  this 
section. 

FEDERAL  RESERVE  BOARD 

Sec.  10.  A Federal  Reserve  Board  is  hereby 
created  which  shall  consist  of  seven  members, 
including  the  Secretary  of  the  Treasury  and 
the  Comptroller  of  the  Currency,  who  shall  be 
members  ex  officio,  and  five  members  appointed 
by  the  President  of  the  United  States,  by  and 
with  the  advice  and  consent  of  the  Senate. 
In  selecting  the  five  appointive  members  of  the 
Federal  Reserve  Board,  not  more  than  one  of 
whom  shall  be  selected  from  any  one  Federal 
reserve  district,  the  President  shall  have  due 
regard  to  a fair  representation  of  the  different 
commercial,  industrial,  and  geographical  divi- 
sions of  the  country.  The  five  members  of  the 
Federal  Reserve  Board  appointed  by  the  Presi- 
dent and  confirmed  as  aforesaid  shall  devots 
their  entire  time  to  the  business  of  the  Federal 
Reserve  Board  and  shall  each  receive  an  annual 
salary  of  $12,000,  payable  monthly  together 
with  actual  necessary  traveling  expenses,  and 
the  Comptroller  of  the  Currency,  as  ex  officio 
member  of  the  Federal  Reserve  Board,  shall,  in 
addition  to  the  salary  now  paid  him  as  Comp- 
troller of  the  Currency,  receive  the  sum  of 
$7,000  annually  for  his  services  as  a member 
of  said  Board. 

The  members  of  said  Board,  the  Secretary 


LAW  AFFECTS  ME 


47 


of  the  Treasury,  the  Assistant  Secretaries  of 
the  Treasury,  and  the  Comptroller  of  the  Cur- 
rency shall  "be  ineligible  during  the  time  they 
are  in  office  and  for  two  years  thereafter  to 
hold  any  office,  position,  or  employment  in  any 
member  bank.  Of  the  five  members  thus  ap- 
pointed by  the  President  at  least  two  shall  be 
persons  experienced  in  banking  or  finance.  One 
shall  be  designated  by  the  President  to  serve 
for  two,  one  for  four,  one  for  six,  one  for  eight, 
and  one  for  ten  years,  and  thereafter  each  mem- 
ber so  appointed  shall  serve  for  a term  of  ten 
years  unless  sooner  removed  for  cause  by  the 
President.  Of  the  five  persons  thus  appointed, 
one  shall  be  designated  by  "the  President  as 
governor  and  one  as  vice-governor  of  the  Fed- 
eral Eeserve  Board.  The  governor  of  the  Fed- 
eral Eeserve  Board,  subject  to  its  supervision, 
shall  be  the  active  executive  officer.  The  Sec- 
retary of  the  Treasury  may  assign  offices  in  the 
Department  of  the  Treasury  for  the  use  of  the 
Federal  Eeserve  Board.  Each  member  of  the 
Federal  Eeserve  Board  shall  within  fifteen  days 
after  notice  of  appointment  make  and  subscribe 
to  the  oath  of  office. 

The  Federal  Eeserve  Board  shall  have  power 
to  levy  semi-annually  upon  the  Federal  reserve 
banks,  in  proportion  to  their  capital  stock  and 
surplus,  an  assessment  sufficient  to  pay  its  esti- 
mated expenses  and  the  salaries  of  its  mem- 
bers and  employees  for  the  half  year  succeed- 
ing the  levying  of  such  assessment,  together 


48 


HOW  THE  NEW  CURRENCY 


with  any  deficit  carried  forward  from  the  pre- 
ceding half  year. 

The  first  meeting  of  the  Federal  Reserve 
Board  shall  be  held  in  Washington,  District 
of  Columbia,  as  soon  as  may  be  after  the  pass- 
age of  this  Act,  at  a date  to  be  fixed  by  the 
Reserve  Bank  Organization  Committee.  The 
Secretary  of  the  Treasury  shall  be  ex  officio 
chairman  of  the  Federal  Reserve  Board.  No 
member  of  the  Federal  Reserve  Board  shall  be 
an  officer  or  director  of  any  bank,  banking  in- 
stitution, trust  company,  or  Federal  reserve 
bank  nor  hold  stock  in  any  bank,  banking  in- 
stitution, or  trust  company;  and  before  enter- 
ing upon  his  duties  as  a member  of  the  Federal 
Reserve  Board  he  shall  certify  under  oath  to 
the  Secretary  of  the  Treasury  that  he  has  com- 
plied with  this  requirement.  Whenever  a va- 
cancy shall  occur,  other  than  by  expiration  of 
term,  among  the  five  members  of  the  Federal 
Reserve  Board  appointed  by  the  President,  as 
above  provided,  a successor  shall  be  appointed 
by  the  President,  with  the  advice  and  consent 
of  the  Senate,  to  fill  such  vacancy,  and  when 
appointed  he  shall  hold  office  for  the  unexpired 
term  of  the  member  whose  place  he  is  selected 
to  fill. 

The  President  shall  have  power  to  fill  all 
vacancies  that  may  happen  on  the  Federal  Re- 
serve Board  during  the  recess  of  the  Senate, 
by  granting  commissions  which  shall  expire 


LAW  AFFECTS  ME 


49 


thirty  days  after  the  next  session  of  the  Sen- 
ate convenes. 

Nothing  in  this  Act  contained  shall  be  con- 
strued as  taking  away  any  powers  heretofore 
vested  by  law  in  the  Secretary  of  the  Treasury 
which  relate  to  the  supervision,  management, 
and  control  of  the  Treasury  Department  and 
bureaus  under  such  department,  and  wherever 
any  power  vested  by  this  Act  in  the  Federal 
Reserve  Board  or  the  Federal  reserve  agent 
appears  to  conflict  with  the  powers  of  the  Sec- 
retary of  the  Treasury,  such  powers  shall  be 
exercised  subject  to  the  supervision  and  control 
of  the  Secretary. 

The  Federal  Reserve  Board  shall  annually 
make  a full  report  of  its  operations  to  the 
Speaker  of  the  House  of  Representatives,  who 
shall  cause  the  same  to  be  printed  for  the  in- 
formation of  the  Congress. 

Section  three  hundred  and  twenty-four  of  the 
Revised  Statutes  of  the  United  States  shall  be 
amended  so  as  to  read  as  follows:  There  shall 
be  in  the  Department  of  the  Treasury  a bureau 
charged  with  the  execution  of  all  laws  passed 
by  Congress  relating  to  the  issue  and  regula- 
tion of  national  currency  secured  by  United 
States  bonds  and,  under  the  general  supervision 
of  the  Federal  Reserve  Board,  of  all  Federal 
reserve  notes,  the  chief  officer  of  which  bureau 
shall  be  called  the  Comptroller  of  the  Currency 
and  shall  perform  his  duties  under  the  general 
directions  of  the  Secretary  of  the  Treasury. 


50 


HOW  THE  NEW  CURRENCY 


POWERS  OF  FEDERAL  RESERVE  BOARD 

Sec.  11.  The  Federal  Reserve  Board  shall 
be  authorized  and  empowered: 

(a)  To  examine  at  its  discretion  the  accounts, 
books,  and  affairs  of  each  Federal  reserve  bank 
and  of  each  member  bank,  and  to  require  such 
statements  and  reports  as  it  may  deem  neces- 
sary. The  said  board  shall  publish  once  each 
week  a statement  showing  the  condition  of  each 
Federal  reserve  bank  and  a consolidated  state- 
ment for  all  Federal  reserve  banks.  Such  state- 
ments shall  show  in  detail  the  assets  and  liabili- 
ties of  the  Federal  reserve  banks,  single  and 
combined,  and  shall  furnish  full  information 
regarding  the  character  of  the  money  held  as 
reserve  and  the  amount,  nature  and  maturities 
of  the  paper  and  other  investments  owned  or 
held  by  Federal  reserve  banks. 

(b)  To  permit,  or,  on  the  affirmative  vote  of 
at  least  five  members  of  the  Reserve  Board  to 
require  Federal  reserve  banks  to  rediscount  the 
discounted  paper  of  other  Federal  reserve  banks 
at  rates  of  interest  to  be  fixed  by  the  Federal 
Reserve  Board. 

(c)  To  suspend  for  a period  not  exceeding 
thirty  days,  and  from  time  to  time  to  renew 
such  suspension  for  periods  not  exceeding  fif- 
teen days,  any  reserve  requirement  specified  in 
this  Act:  Provided,  That  it  shall  establish  a 
graduated  tax  upon  the  amounts  by  which  the 
reserve  requirements  of  this  Act  may  be  per- 


LAW  AFFECTS  ME 


51 


mitted  to  fall  below  the  level  hereinafter  speci- 
fied: And  provided  further,  That  when  the  gold 
reserve  held  against  Federal  reserve  notes  falls 
below  forty  per  centum,  the  Federal  Reserve 
Board  shall  establish  a graduated  tax  of  not 
more  than  one  per  centum  per  annum  upon 
such  deficiency  until  the  reserves  fall  to  thirty- 
two  and  one-half  per  centum,  and  when  said 
reserve  falls  below  thirty-two  and  one-half  per 
centum,  a tax  at  the  rate  increasingly  of  not 
less  than  one  and  one-half  per  centum  per  an- 
num upon  each  two  and  one-half  per  centum 
or  fraction  thereof  that  such  reserve  falls  be- 
low thirty-two  and  one-half  per  centum.  The 
tax  shall  be  paid  by  the  reserve  bank,  but  the 
reserve  bank  shall  add  an  amount  equal  to  said 
tax  to  the  rates  of  interest  and  discount  fixed 
by  the  Federal  Reserve  Board. 

(d)  To  supervise  and  regulate  through  the 
bureau  under  the  charge  of  the  Comptroller 
of  the  Currency  the  issue  and  retirement  of 
Federal  reserve  notes,  and  to  prescribe  rules 
and  regulations  under  which  such  notes  may 
be  delivered  by  the  Comptroller  to  the  Federal 
reserve  agents  applying  therefor. 

(e)  To  add  to  the  number  of  cities  classified 
as  reserve  and  central  reserve  cities  under  exist- 
ing law  in  which  national  banking  associations 
are  subject  to  the  reserve  requirements  set 
forth  in  section  twenty  of  this  Act;  or  to  re- 
classify existing  reserve  and  central  reserve 


u.  OF  ILL  LIB. 


52 


HOW  THE  NEW  CURRENCY 


cities  or  to  terminate  their  designation  as 
such. 

(f)  To  suspend  or  remove  any  officer  or  di- 
rector of  any  Federal  reserve  bank,  the  cause 
of  such  removal  to  be  forthwith  communicated 
in  writing  by  the  Federal  Reserve  Board  to 
the  removed  officer  or  director  and  to  said 
bank. 

(g)  To  require  the  writing  off  of  doubtful 
or  worthless  assets  upon  the  books  and  balance 
sheets  of  Federal  reserve  banks. 

(h)  To  suspend,  for  the  violation  of  any  of 
the  provisions  of  this  Act,  the  operations  of 
any  Federal  reserve  bank,  to  take  possession 
thereof,  administer  the  same  during  the  period 
of  suspension,  and,  when  deemed  advisable,  to 
liquidate  or  reorganize  such  bank. 

(i)  To  require  bonds  of  Federal  reserve 
agents,  to  make  regulations  for  the  safeguard- 
ing of  all  collateral,  bonds,  Federal  reserve 
notes,  money  or  property  of  any  kind  deposited 
in  the  hands  of  such  agents,  and  said  board 
shall  perform  the  duties,  functions,  or  services 
specified  in  this  Act,  and  make  all  rules  and 
regulations  necessary  to  enable  said  board  ef- 
fectively to  perform  the  same. 

(j)  To  exercise  general  supervision  over  said 
Federal  reserve  banks. 

(k)  To  grant  by  special  permit  to  national 
banks  applying  therefor,  when  not  in  contra- 
vention of  State  or  local  law,  the  right  to  act 
as  trustee,  executor,  administrator,  or  registrar 


LAW  AFFECTS  ME 


53 


of  stocks  and  bonds  under  such  rules  and  regu- 
lations as  the  said  hoard  may  prescribe.? 

(1)  To  employ  such  attorneys,  experts,  assist- 
ants, clerks,  or  other  employees  as  may  be 
deemed  necessary  to  conduct  the  business  of  the 
board.  All  salaries  and  fees  shall  be  fixed  in 
advance  by  said  board  and  shall  be  paid  in  the 
same  manner  as  the  salaries  of  the  members 
of  said  board.  All  such  attorneys,  experts,  as- 
sistants, clerks,  and  other  employees  shall  be 
appointed  without  regard  to  the  provisions  of 
the  Act  of  January  16,  1883  (volume  23,  United 
States  Statutes  at  Large,  page  403),  and 
amendments  thereto,  or  any  rule  or  regulation 
made  in  pursuance  thereof:  Provided,  That 
nothing  herein  shall  prevent  the  President  from 
placing  said  employees  in  the  classified  service. 

? TRUST  COMPANIES  UNDER  FEDERAL 
LAW. — In  order  that  the  banks  organized  under 
Federal  law  shall  be  accorded  more  of  the  valu- 
able rights  which  now  are  exercised  solely  by 
corporations  holding  state  charters  the  above  was 
placed  in  the  law.  Under  the  present  administra- 
tion most  of  the  valuable  rights  which  the  Na- 
tional banks  formerly  held  have  been  taken  from 
them — no  longer  are  the  Government  deposits  of 
money  given  to  the  National  banks  (they  are  pay- 
ing 2 per  cent.),  and  the  cost  of  the  bank  notes 
that  are  issued  in  connection  with  the  2 per  cent, 
bonds  is  increased  (the  5 per  cent,  of  the  amount 
of  bank  notes  outstanding  is  no  longer  to  be  de- 
ducted from  its  lawful  reserves;  section  20  of  this 
act),  so  that  It  has  become  necessary  to  offer  the 
National  banks  enough  valuable  rights  to  keep 
them  from  dropping  the  National  bank  charter* 
and  taking  out  State  charters, 


54 


HOW  THE  NEW  CURRENCY 


FEDERAL  ADVISORY  COUNCIL 

Sec.  12.  There  is  hereby  created  a Federal 
Advisory  Council,  which  shall  consist  of  as 
many  members  as  there  are  Federal  reserve 
districts.  Each  Federal  reserve  bank  by  it3 
board  of  directors  shall  annually  select  from 
its  own  Federal  reserve  district  one  member  of 
said  council,  who  shall  receive  such  compensa- 
tion and  allowances  as  may  be  fixed  by  his 
board  of  directors  subject  to  the  approval  of 
the  Federal  Reserve  Board.  The  meetings  of 
said  advisory  council  shall  be  held  at  Washing- 
ton, District  of  Columbia,  at  least  four  times 
each  year,  and  oftener  if  called  by  the  Federal 
Reserve  Board.  The  council  may  in  addition 
to  the  meetings  above  provided  for  hold  such 
other  meetings  in  Washington,  District  of  Co- 
lumbia, or  elsewhere,  as  it  may  deem  necessary, 
may  select  its  own  officers  and  adopt  its  own 
methods  of  procedure,  and  a majority  of  its 
members  shall  constitute  a quorum  for  the 
transaction  of  business.  Vacancies  in  the  coun- 
cil shall  be  filled  by  the  respective  reserve 
banks,  and  members  selected  to  fill  vacancies 
shall  serve  for  the  unexpired  term. 

The  Federal  Advisory  Council  shall  have 
power,  by  itself  or  through  its  officers,  (1)  to 
confer  directly  with  the  Federal  Reserve  Board 
on  general  business  conditions;  (2)  to  make 
oral  or  written  representations  concerning  mat- 
ters within  the  jurisdiction  of  said  board;  (3) 


LAW  AFFECTS  ME 


55 


to  call  for  information  and  to  make  recom- 
mendations in  regard  to  discount  rates,  redis- 
count business,  note  issues,  reserve  conditions 
in  the  various  districts,  the  purchase  and  sal8 
of  gold  or  securities  by  reserve  banks,  open- 
market  operations  by  said  banks,  and  the  gen- 
eral affairs  of  the  reserve  banking  system. 


POWERS  OF  FEDERAL  RESERVE  BANKS 
1.  Deposits 

Sec.  13.  Any  Federal  reserve  bank  may  re- 
ceive from  any  of  its  member  banks,  and  from 
the  United  States,  deposits  of  current  funds  in 
lawful  money,  national  bank  notes,  Federal  re- 
serve notes,  or  checks  and  drafts  upon  solvent 
member  banks,  payable  upon  presentation;  or, 
solely  for  exchange  purposes,  may  receive  from 
other  Federal  reserve  banks  deposits  of  current 
funds  in  lawful  money,  national  bank  notes,  or 
checks  and  drafts  upon  solvent  member  or  other 
Federal  reserve  banks,  payable  upon  presenta- 
tion. 

2.  Rediscounts 

Upon  the  indorsement  of  any  of  its  member 
banks,  with  a waiver  of  demand,  notice,  and 
protest  by  such  bank,  any  Federal  reserve  bank 
may  discount  notes,  drafts,  and  bills  of  ex- 
change arising  out  of  actual  commercial  trans- 
actions; that  is,  notes,  drafts,  and  bills  of  ex- 


56 


HOW  THE  NEW  CURRENCY 


change  issued  or  drawn  for  agricultural,  indus- 
trial, or  commercial  purposes,  or  the  proceeds 
of  which  have  been  used,  or  are  to  be  used,  for 
such  purposes,  the  Federal  Reserve  Board  to 
have  the  right  to  determine  or  define  the  char- 
acter of  the  paper  thus  eligible  for  discount, 
within  the  meaning  of  this  Act.  Nothing  in 
this  Act  contained  shall  be  construed  to  pro- 
hibit such  notes,  drafts,  and  bills  of  exchange, 
secured  by  staple  agricultural  products,  or  other 
goods,  wares,  or  merchandise  from  being  eligi- 
ble for  such  discount;  but  such  definition  shall 
not  include  notes,  drafts,  or  bills  covering 
merely  investments  or  issued  or  drawn  for  the 
purpose  of  carrying  or  trading  in  stocks,  bonds, 
or  other  investment  securities,  except  bonds  and 
notes  of  the  Government  of  the  United  States. 
Notes,  drafts,  and  bills  admitted  to  discount 
under  the  terms  of  this  paragraph  must  have 
a maturity  at  the  time  of  discount  of  not  more 
than  ninety  days:  Provided,  That  notes,  drafts, 
and  bills  drawn  or  issued  for  agricultural  pur- 
poses or  based  on  live  stock  and  having  a ma- 
turity not  exceeding  six  months  may  be  dis- 
counted in  an  amount  to  be  limited  to  a per- 
centage of  the  capital  of  the  Federal  reserve 
bank,  to  be  ascertained  and  fixed  by  the  Fed- 
eral Reserve  Board.8 

8 REDISCOUNTS— VOLUME  OF  MONEY  AND 
PRICE  LEVEL— DISCRETIONARY  CONTROL.— 
The  above  is  one  of  the  main  provisions  of  the 
new  law.  Further  details  are  in  the  remaining 
paragraphs  of  the  section. 

The  main  idea  is  that  the  demand  for  cur- 


LAW  AFFECTS  ME 


57 


Any  Federal  reserve  bank  may  discount  ac- 
ceptances which  are  based  on  the  importation 
or  exportation  of  goods  and  which  have  a ma- 
turity at  time  of  discount  of  not  more  than 
three  months,  and  indorsed  by  at  least  one 
member  bank.  The  amount  of  acceptances  so 
discounted  shall  at  no  time  exceed  one-half  the 
paid-up  capital  stock  and  surplus  of  the  bank 
for  which  the  rediscounts  are  made. 

The  aggregate  of  such  notes  and  bills  bear- 
ing the  signature  or  indorsement  of  any  one 
person,  company,  firm,  or  corporation  redis- 
counted for  any  one  bank  shall  at  no  time  ex- 
ceed ten  per  centum  of  the  unimpaired  capital 
and  surplus  of  said  bank;  but  this  restriction 

rency  shall  come  in  connection  with  business 
paper  that  will  (1)  become  due  in  a short  time; 
and  (2)  will  surely  be  paid.  When  paid  the 
money  will  be  handed  over  to  the  agent  of  the 
Federal  Reserve  Board,  who  holds  the  business 
paper,  and  thereby  the  money  will  be  out  of 
circulation.  Thus  a prompt  retirement  is  pro- 
vided for,  which  is  as  important  as  ease  in  is- 
suance. 

The  volume  of  currency  that  will  be  issued  from 
time  to  time  will  be  determined  as  follows: 

First.  By  the  interest  rate  for  rediscount,  as 
provided  for  in  the  next  section,  the  said  rate 
to  be  fixed  from  time  to  time  by  the  board 
of  directors  of  each  reserve  bank,  subject  to  a 
final  power  in  the  Federal  Reserve  Board  to 
control  it. 

Second.  By  the  maintaining  of  a gold  reserve, 
as  provided  for  in  section  16.  This  will  merely 
operate,  however,  as  a limitation,  and  not  in  any 
way  determine  from  week  to  week  the  changes 
in  the  volume  of  currency  and  gold  within  the 
country,  which  will  depend  upon  the  discretionary 
control  by  the  Federal  Reserve  Board,  the  same 
as  is  the  control  in  each  of  the  leading  Euro- 
pean countries.  Thus  intelligence,  and  not  autom- 
atism, will  be  the  directing  power. 


58 


HOW  THE  NEW  CURRENCY 


shall  not  apply  to  the  discount  of  hills  of  ex- 
change drawn  in  good  faith  against  actually 
existing  values. 

Any  member  bank  may  accept  drafts  or  bills 
of  exchange  drawn  upon  it  and  growing  out 
of  transactions  involving  the  importation  or 
exportation  of  goods  having  not  more  than  six 
months  sight  to  run;  but  no  bank  shall  accept 
such  bills  to  an  amount  equal  at  any  time  in 
the  aggregate  to  more  than  one-half  its  paid-up 
capital  stock  and  surplus. 

3.  Powers  of  Member  Banks 

Section  fifty-two  hundred  and  two  of  the  Re- 
vised Statutes  of  the  United  States  is  hereby 
amended  so  as  to  read  as  follows:  No  national 
banking  association  shall  at  any  time  be  in- 
debted, or  in  any  way  liable,  to  an  amount  ex- 
ceeding the  amount  of  its  capital  stock  at  such 
time  actually  paid  in  and  remaining  undimin- 
ished by  losses  or  otherwise,  except  on  account 
of  demands  of  the  nature  following: 

First.  Notes  of  circulation. 

Second.  Moneys  deposited  with  or  collected 
by  the  association. 

Third.  Bills  of  exchange  or  drafts  drawn 
against  money  actually  on  deposit  to  the  credit 
of  the  association,  or  due  thereto. 

Fourth.  Liabilities  to  the  stockholders  of  the 
association  for  dividends  and  reserve  profits. 

Fifth.  Liabilities  incurred  under  the  provi- 
sions of  the  Federal  Reserve  Act. 


LAW  AFFECTS  ME 


59 


The  rediscount  by  any  Federal  reserve  bank 
of  any  bills  receivable  and  of  domestic  and 
foreign  bills  of  exchange,  and  of  acceptances 
authorised  by  this  Act,  shall  be  subject  to  such 
restrictions,  limitations,  and  regulations  as  may 
be  imposed  by  the  Federal  Reserve  Boards 


4.  Open-Market  Operations 

Sec.  14.  Any  Federal  reserve  bank  may,  un- 
der rules  and  regulations  prescribed  by  the 
Federal  Reserve  Board,  purchase  and  sell  in 
the  open  market,  at  home  or  abroad,  either  from 
or  to  domestic  or  foreign  banks,  firms,  corpora- 
tions, or  individuals,  cable  transfers  and  bank- 
ers* acceptances  and  bills  of  exchange  of  the 
kinds  and  maturities  by  this  Act  made  eligible 
for  rediscount,  with  or  without  the  indorsement 
of  a member  bank.10 

8 FULL  PROTECTION  OF  PUBLIC  INTER- 
ESTS.— The  above  is  another  illustration  of  the 
way  that  the  public  interests  are  fully  protected. 
The  Federal  Reserve  Board,  composed  of  mem- 
bers that  fully  represent  the  public,  are  to  be  con- 
tinuously on  duty,  under  powers  that  will  enable 
the  said  board  to  fully  protect  all  public  interests. 
Should  any  additional  powers  for  them  be  found 
to  be  useful  they  can  be  added  by  any  Con- 
gress. 

10  REASONS  FOR  THE  OPEN  MARKET.— 
The  reason  for  these  open-market  provisions  is  to 
enable  the  Federal  Reserve  Board  to  be  empow- 
ered to  do  whatever  it  shall  find  to  be  necessary 
for  the  public  welfare.  Only  under  unusual  condi- 
tions will  the  reserve  banks  be  permitted  or  or- 
dered to  go  into  the  open  market  and  purchase 
or  sell,  thereby  operating  in  competition  with 
the  member  banks,  and  also  accepting  more  risks 
from  losses  than  where  the  paper  purchased  shall 
be  endorsed  by  a duly  inspected  bank. 


60 


HOW  THE  NEW  CURRENCY 


5.  Additional  Powers  of  Reserve  Banks 

Every  Federal  reserve  bank  shall  have  power: 

(a)  To  deal  in  gold  coin  and  bullion  at  home 
or  abroad,  to  make  loans  thereon,  exchange 
Federal  reserve  notes  for  gold,  gold  coin,  or 
gold  certificates,  and  to  contract  for  loans  of 
gold  coin  or  bullion,  giving  therefor,  when 
necessary,  acceptable  security,  including  the  hy- 
pothecation of  United  States  bonds  or  other  se- 
curities which  Federal  reserve  banks  are  author- 
ized to  hold. 

(b)  To  buy  and  sell,  at  home  or  abroad,  bonds 
and  notes  of  the  United  States,  and  bills,  notes, 
revenue  bonds,  and  warrants  with  a maturity 
from  date  of  purchase  of  not  exceeding  six 
months,  issued  in  anticipation  of  the  collection 
of  taxes  or  in  anticipation  of  the  receipt  of 
assured  revenues  by  any  State,  county,  district, 
political  subdivision,  or  municipality  in  the  con- 
tinental United  States,  including  irrigation, 
drainage,  and  reclamation  districts,  such  pur- 
chases to  be  made  in  accordance  with  rules  and 
regulations  prescribed  by  the  Federal  Reserve 
Board. 

(c)  To  purchase  from  member  banks  and  to 
sell,  with  or  without  its  indorsement,  bills  of 
exchange  arising  out  of  commercial  transac- 
tions, as  hereinbefore  defined. 

(d)  To  establish  from  time  to  time,  subject 
to  review  and  determination  of  the  Federal 
Reserve  Board,  rates  of  discount  to  be  charged 


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by  the  Federal  reserve  bank  for  each  class  of 
paper,  which  shall  be  fixed  with  a view  of  ac- 
commodating commerce  and  business.** 

(e)  To  establish  accounts  with  other  Federal 
reserve  banks  for  exchange  purposes  and,  with 
the  consent  of  the  Federal  Reserve  Board,  to 
open  and  maintain  banking  accounts  in  foreign 
countries,  appoint  correspondents,  and  establish 
agencies  in  such  countries  wheresoever  it  may 
deem  best  for  the  purpose  of  purchasing,  sell- 
ing, and  collecting  bills  of  exchange,  and  to 
buy  and  sell  with  or  without  its  indorsement, 
through  such  correspondents  or  agencies,  bills 
of  exchange  arising  out  of  actual  commercial 
transactions  which  have  not  more  than  ninety 
days  to  run  and  which  bear  the  signature  of 
two  or  more  responsible  parties. 

GOVERNMENT  DEPOSITS 

Sec.  15.  The  moneys  held  in  the  general  fund 
of  the  Treasury,  except  the  five  per  centum 
fund  for  the  redemption  of  outstanding  national 
bank  notes  and  the  funds  provided  in  this  Act 
for  the  redemption  of  Federal  reserve  notes 
may,12  upon  the  direction  of  the  Secretary 

11  See  page  7. 

12  MAINTENANCE  OF  THE  INDEPEND- 
ENCE OF  THE  FEDERAL  GOVERNMENT’S 
TREASURY. — Note  that  the  word  used  is  “may," 
and  not  “shall,"  as  was  proposed  in  the  Aldrich 
bill.  Were  the  Federal  Administration  forced  by 
a law  of  the  land  to  deposit  all  of  its  ready  money 
with  another  corporation  or  set  of  corporations  it 
would  take  from  it  a large  part  of  its  independ- 
ence. 


62 


HOW  THE  NEW  CURRENCY 


of  the  Treasury,  be  deposited  in  Federal  re- 
serve banks,  which  banks,  when  required  by  the 
Secretary  of  the  Treasury,  shall  act  as  fiscal 
agents  of  the  United  States;  and  the  revenues 
of  the  Government  or  any  part  thereof  may 
be  deposited  in  such  banks,  and  disbursements 
may  be  made  by  checks  drawn  against  such  de- 
posits. 

No  public  funds  of  the  Philippine  Islands,  or 
of  the  postal  savings,  or  any  Government  funds, 
shall  be  deposited  in  the  continental  United 
States  in  any  bank  not  belonging  to  the  system 
established  by  this  Act:  Provided,  however, 
That  nothing  in  this  Act  shall  be  construed  to 
deny  the  right  of  the  Secretary  of  the  Treasury 
to  use  member  banks  as  depositories. 

NOTE  ISSUES  AND  GOLD  RESERVE 

Sec.  16.  Federal  reserve  notes,  to  be  issued 
at  the  discretion  of  the  Federal  Reserve  Board 
for  the  purpose  of  making  advances  to  Federal 
reserve  banks  through  the  Federal  reserve 
agents  as  hereinafter  set  forth  and  for  no  other 
purpose,  are  hereby  authorised.  The  said  notes 
shall  be  obligations  of  the  United  States  and 
shall  be  receivable  by  all  national  and  member 
banks  and  Federal  reserve  banks  and  for  all 
taxes,  customs,  and  other  public  dues.  They 
shall  be  redeemed  in  gold  on  demand  at  the 
Treasury  Department  of  the  United  States,  in 
the  city  of  Washington,  District  of  Columbia, 


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63 


or  in  gold  or  lawful  money  is  at  any  Federal 
reserve  bank. 

Any  Federal  reserve  bank  may  make  applica- 
tion to  the  local  Federal  reserve  agent  for  such 
amount  of  the  Federal  reserve  notes  hereinbe- 
fore provided  for  as  it  may  require.  Such  ap- 
plication shall  be  accompanied  with  a tender  to 
the  local  Federal  reserve  agent  of  collateral  in 
amount  equal  to  the  sum  of  the  Federal  reserve 
notes  thus  applied  for  and  issued  pursuant  to 
such  application.**  The  collateral  security 
thus  offered  shall  be  notes  and  bills,  accepted 
for  rediscount  under  the  provisions  of  section 
thirteen  of  this  Act,  and  the  Federal  reserve 
agent  shall  each  day  notify  the  Federal  Reserve 

13  GOLD  EXPORTS. — While  the  maintenance 
of  the  gold  standard  of  prices  is  amply  provided 
for,  the  aim  of  the  above  provision,  “gold  or  law- 
ful money,”  is  that  the  reserve  banks  need  not 
supply  gold  for  export  unless  they  wish  to.  The 
Government  Treasury  at  Washington  is  obliged  to 
supply  gold  when  called  upon,  as  we  have  seen, 
but  the  distance  of  Washington  from  New  York 
will  tend  to  cause  the  gold  for  export  to  be 
secured  from  the  private  New  York  banks.  In 
European  countries  the  general  rule  is  that  gold 
can  be  demanded  from  the  Government  or  the 
central  bank  only  at  one  place. 

14  THE  SYSTEM. — In  other  words,  the  sys- 
tem is  that  the  Federal  Reserve  notes  are  to  be 
issued  only  in  exchange  for  business  paper;  and 
then  as  it  is  paid  the  volume  of  money  will  be 
reduced  correspondingly.  In  that  way  there  will 
be  a prompt  retirement  of  the  currency  that  has 
been  issued.  On  the  other  hand,  the  need  for 
currency  will  be  shown  in  a practicable  manner. 
This  general  system  of  asset  currency  is  in  use 
in  every  leading  country  in  Europe.  It  is  the 
cheapest  and  most  practicable  plan  that  is  known. 
The  business  men  of  the  United  States  in  their 
competition  with  Europe  are  now  to  be  supplied 
with  as  good  or  a better  system  than  that  in  use 
by  their  competitors. 


64 


HOW  THE  NEW  CURRENCY 


Board  of  all  issues  and  withdrawals  of  Federal 
reserve  notes  to  and  by  the  Federal  reserve 
bank  to  which  he  is  accredited.  The  said  Fed- 
eral Reserve  Board  may  at  any  time  call  upon 
a Federal  reserve  bank  for  additional  security 
to  protect  the  Federal  reserve  notes  issued  to  it. 

Every  Federal  reserve  bank  shall  maintain 
reserves  in  gold  or  lawful  money  of  not  less 
than  thirty-five  per  centum  against  its  deposits 
and  reserves  in  gold  of  not  less  than  forty  per 
centum  is  against  its  Federal  reserve  notes  in 
actual  circulation,  and  not  offset  by  gold  or 
lawful  money  deposited  with  the  Federal  reserve 
agent.  Notes  so  paid  out  shall  bear  upon  their 
faces  a distinctive  letter  and  serial  number, 
which  shall  be  assigned  by  the  Federal  Reserve 
Board  to  each  Federal  reserve  bank.  When- 
ever Federal  reserve  notes  issued  through  one 
Federal  reserve  bank  shall  be  received  by  an- 
other Federal  reserve  bank  they  shall  be 
promptly  returned  for  credit  or  redemption  to 


15  GOLD  RESERVE. — Here  the  percentage  of 
the  gold  reserve  is  40  per  cent.,  while  in  Germany, 
for  example,  the  percentage  is  33V&.  But  all  that 
this  limitation  can  do  is  to  insure  that  gold  will 
be  retained  in  use  in  this  country;  the  constant 
check  and  gauge  being  the  interest  rate  for  re- 
discounts provided  for  in  section  14.  There  will 
still  exist  the  gold  reserve  in  the  Federal  Treas- 
ury, amounting  to  $150,000,000,  that  is  back  of  (1) 
the  $346,000,000  of  “greenbacks,”  (2)  the  $2,500.- 
000  of  other  forms  of  treasury  notes,  and  (3)  the 
$725,000,000  of  National  bank  notes.  Furthermore, 
there  is  the  gold  in  the  Federal  Treasury  that  is 
back  of  the  gold  certificates,  amounting,  on  De- 
cember 1,  1913,  to  $1,100,000,000.  This  country  has 
the  largest  volume  of  gold  of  any  country  in  the 
world. 


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65 


the  Federal  reserve  bank  through  which  they 
were  originally  issued.  No  Federal  reserve 
bank  shall  pay  out  notes  issued  through  an- 
other under  penalty  of  a tax  of  ten  per  centum 
upon  the  face  value  of  notes  so  paid  out.*e 
Notes  presented  for  redemption  at  the  Treasury 
of  the  United  States  shall  be  paid  out  of  the 
redemption  fund  and  returned  to  the  Federal 
reserve  banks  through  which  they  were  origin- 
ally issued,  and  thereupon  such  Federal  reserve 
bank  shall,  upon  demand  of  the  Secretary  of 
the  Treasury,  reimburse  such  redemption  fund 
in  lawful  money  or,  if  such  Federal  reserve 
notes  have  been  redeemed  by  the  Treasurer  in 
gold  or  gold  certificates,  then  such  funds  shall 
be  reimbursed  to  the  extent  deemed  necessary 
by  the  Secretary  of  the  Treasury  in  gold  or 
gold  certificates,  and  such  Federal  reserve  bank 
shall,  so  long  as  any  of  its  Federal  reserve 
notes  remain  outstanding,  maintain  with  the 
Treasurer  in  gold  an  amount  sufficient  in  the 
judgment  of  the  Secretary  to  provide  for  all 
redemptions  to  be  made  by  the  Treasurer.*? 
Federal  reserve  notes  received  by  the  Treasury, 
otherwise  than  for  redemption  may  be  ex- 
changed for  gold  out  of  the  redemption  fund 

16  CURRENCY  CIRCULATION.— This  insures 
that  within  each  reserve  district  the  Federal  re- 
serve notes  in  use  will  be  those  of  its  own  bank. 

17  NO  ENDLESS  CHAIN.— This  and  other 
provisions  demonstrate  that  the  Federal  Reserve 
banks  must  care  for  the  demands  for  gold.  There 
will  be  no  repetition  of  the  “endless  chain,” 
which  at  one  time  caused  the  Government  to  issue 
bonds  to  maintain  the  gold  reserve. 


66 


HOW  THE  NEW  CURRENCY 


hereinafter  provided  and  returned  to  the  re- 
serve bank  through  which  they  were  originally 
issued,  or  they  may  be  returned  to  such  bank 
for  the  credit  of  the  United  States.  Federal 
reserve  notes  unfit  for  circulation  shall  be  re- 
turned by  the  Federal  reserve  agents  to  the 
Comptroller  of  the  Currency  for  cancelation 
and  destruction. 

The  Federal  Reserve  Board  shall  require  each 
Federal  reserve  bank  to  maintain  on  deposit  in 
the  Treasury  of  the  United  States  a sum  in 
gold  sufficient  in  the  judgment  of  the  Secretary 
of  the  Treasury  for  the  redemption  of  the  Fed- 
eral reserve  notes  issued  to  such  bank,  but  in 
no  event  less  than  five  per  centum;  but  such 
deposit  of  gold  shall  be  counted  and  included 
as  part  of  the  forty  per  centum  reserve  herein- 
before required.  The  board  shall  have  the 
right,  acting  through  the  Federal  reserve  agent, 
to  grant  in  whole  or  in  part  or  to  reject  en- 
tirely the  application  of  any  Federal  reserve 
bank  for  Federal  reserve  notes;  is  but  to  the 

is  THE  SYSTEM.— While  the  law  expressly 
states  that  the  Federal  Reserve  Board  may  re- 
ject applications  for  loans,  yet  the  logic  of  the 
situation  will  be  such  that  at  no  time  will  there 
be  a rejection,  judging  from  the  operation  of 
similar  systems  in  Europe,  and  the  fact  that  the 
way  the  Federal  Reserve  Board  will  limit  the  out- 
put of  currency  will  be  through  its  control  of  the 
Interest  rate.  Whenever  the  board  shall  find  it 
desirable  to  further  restrict  the  output  of  cur- 
rency the  thing  that  will  be  done  will  be  to  raise 
the  interest  rate.  That  will  lessen  the  demand — 
it  will  shake  out  all  who  are  willing  to  retire 
rather  than  pay  the  higher  rate.  In  other  words, 
under  the  new  system  currency  will  always  be 
obtainable  by  those  who  possess  the  regulation  se- 


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67 


extent  that  such  application  may  be  granted 
the  Federal  Reserve  Board  shall,  through  its 
local  Federal  reserve  agent,  supply  Federal  re- 
serve notes  to  the  bank  so  applying,  and  such 
bank  shall  be  charged  with  the  amount  of  such 
notes  and  shall  pay  such  rate  of  interest  on 
said  amount  as  may  be  established  by  the  Fed- 
eral Reserve  Board,19  and  the  amount  of  such 
Federal  reserve  notes  so  issued  to  any  such 
bank  shall,  upon  delivery,  together  with  such 
notes  of  such  Federal  reserve  bank  as  may  be 
issued  under  section  eighteen  of  this  Act  upon 
security  of  United  States  two  per  centum  Gov- 
ernment bonds,  become  a first  and  paramount 
lien  on  all  the  assets  of  such  bank.20 

curities  and  are  willing  to  pay  the  going  rate; 

whereas,  under  the  preceding  system  there  were 
times  when  the  money-lenders  were  able  to 
and  did  ruin  capable  business  men  by  refusing 
them  loans,  no  matter  how  ample  their  securi- 
ties. 

19  INTEREST  CHARGES.— On  the  paper  cur- 
rency that  is  issued  the  Government  will  get  the 
interest  that  is  paid  by  the  reserve  banks  to  the 
Federal  Reserve  Board;  and,  also,  will  get  what- 
ever net  profits  that  these  reserve  banks  shall 
make.  It  follows  that  it  will  make  no  difference 
to  the  Government’s  income  from  the  system 
whether  the  Federal  Reserve  Board  shall  charge 
a low  or  a high  rate  of  interest  to  the  reserve 
banks 

20  AMPLE  SECURITY.— The  Federal  Reserve 
Notes  are  to  be  amply  secured.  In  addition  to  the 
security  upon  which  the  bank  that  accepts  the 
business  paper  will  rely  there  will  be  the  endorse- 
ment of  that  bank,  whose  liability  includes  the 
personal  liability  of  its  stockholders  for  an  amount 
equal  to  the  amount  of  the  bank’s  capital  stock 
held  by  them.  Next  there  will  be  the  liability  of 
the  reserve  bank,  which  includes  the  40  per  cent, 
gold  reserve  and  the  double  liability  of  the  banks 
that  own  the  capital  stock  of  the  reserve  bank 
(section  2). 


HOW  THE  NEW  CURRENCY 


Any  Federal  reserve  bank  may  at  any  time 
reduce  its  liability  for  outstanding  Federal  re- 
serve notes  by  depositing,  with  the  Federal  re- 
serve agent,  its  Federal  reserve  notes,  gold, 
gold  certificates,  or  lawful  money  of  the  Unite:! 
States.  Federal  reserve  notes  so  deposited  shall 
not  be  reissued,  except  upon  compliance  with 
the  conditions  of  an  original  issue. 

The  Federal  reserve  agent  shall  hold  such 
gold,  gold  certificates,  or  lawful  money  avail- 
able exclusively  for  exchange  for  the  outstand- 
ing Federal  reserve  notes  when  offered  by  the 
reserve  bank  of  which  he  is  a director.  Upon 
the  request  of  the  Secretary  of  the  Treasury  the 
Federal  Reserve  Board  shall  require  the  Fed- 
eral reserve  agent  to  transmit  so  much  of  said 
gold  to  the  Treasury  of  the  United  States  as 
may  be  required  for  the  exclusive  purpose  of 
the  redemption  of  such  notes. 

Any  Federal  reserve  bank  may  at  its  discre- 
tion withdraw  collateral  deposited  with  the  lo- 
cal Federal  reserve  agent  for  the  protection  of 
its  Federal  reserve  notes  deposited  with  it  and 
shall  at  the  same  time  substitute  therefor  other 
like  collateral  of  equal  amount  with  the  ap- 
proval of  the  Federal  reserve  agent  under  regu- 
lations to  be  prescribed  by  the  Federal  Reserve 
Board. 

In  order  to  furnish  suitable  notes  for  circu- 
lation as  Federal  reserve  notes,  the  Comptroller 
of  the  Currency  shall,  under  the  direction  of 
the  Secretary  of  the  Treasury,  cause  plates  and 


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dies  to  be  engraved  in  the  best  manner  to  guard 
against  counterfeits  and  fraudulent  alterations, 
and  shall  have  printed  therefrom  and  numbered 
such  quantities  of  such  notes  of  the  denomina- 
tions of  $5,  $10,  $20,  $50,  $100  as  may  be  re- 
quired to  supply  the  Federal  reserve  banks. 
Such  notes  shall  be  in  form  and  tenor  as  di- 
rected by  the  Secretary  of  the  Treasury  under 
the  provisions  of  this  Act  and  shall  bear  the 
distinctive  numbers  of  the  several  Federal  re- 
serve banks  through  which  they  are  issued. 

When  such  notes  have  been  prepared,  they 
shall  be  deposited  in  the  Treasury,  or  in  the 
subtreasury  or  mint  of  the  United  States  near- 
est the  place  of  business  of  each  Federal  re- 
serve bank  and  shall  be  held  for  the  use  of 
such  bank  subject  to  the  order  of  the  Comp- 
troller of  the  Currency  for  their  delivery,  as 
provided  by  this  Act. 

The  plates  and  dies  to  be  procured  by  the 
Comptroller  of  the  Currency  for  the  printing 
of  such  circulating  notes  shall  remain  under  his 
control  and  direction,  and  the  expenses  neces- 
sarily incurred  in  executing  the  laws  relating 
to  the  procuring  of  such  notes,  and  all  other 
expenses  incidental  to  their  issue  and  retire- 
ment, shall  be  paid  by  the  Federal  reserve 
banks,  and  the  Federal  Reserve  Board  shall  in- 
clude in  its  estimate  of  expenses  levied  against 
the  Federal  reserve  banks  a sufficient  amount 
to  cover  the  expenses  herein  provided  for. 

The  examination  of  plates,  dies,  bed  pieces, 


70 


HOW  THE  NEW  CUBBENCY 


and  so  forth,  and  regulations  relating  to  such 
examination  of  plates,  dies,  and  so  forth,  of 
national  bank  notes  provided  for  in  section 
fifty-one  hundred  and  seventy-four,  Bevised 
Statutes,  is  hereby  extended  to  include  notes 
herein  provided  for. 

Any  appropriation  heretofore  made  out  of 
the  general  funds  of  the  Treasury  for  engrav- 
ing plates  and  dies,  the  purchase  of  distinctive 
paper,  or  to  cover  any  other  expense  in  connec- 
tion with  the  printing  of  national  bank  notes 
or  notes  provided  for  by  the  Act  of  May  30, 
1908,  and  any  distinctive  paper  that  may  be 
on  hand  at  the  time  of  the  passage  of  this  Act 
may  be  used  in  the  discretion  of  the  Secretary 
for  the  purposes  of  this  Act,  and  should  the 
appropriations  heretofore  made  be  insufficient  to 
meet  the  requirements  of  this  Act,  in  addition 
to  circulating  notes  provided  for  by  existing 
law,  the  Secretary  is  hereby  authorized  to  use 
so  much  of  any  funds  in  the  Treasury  not  other- 
wise appropriated  for  the  purpose  of  furnish- 
ing the  notes  aforesaid:  Provided,  however, 
That  nothing  in  this  section  contained  shall 
be  construed  as  exempting  national  banks  or 
Federal  reserve  banks  from  their  liability  to 
reimburse  the  United  States  for  any  expenses 
incurred  in  printing  and  issuing  circulating 
notes. 

Every  Federal  reserve  bank  shall  receive  on 
deposit  at  par  from  member  banks  or  from 
Federal  reserve  banks  checks  and  drafts  drawn 


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71 


upon  any  of  its  depositors,  and,  when  remitted 
by  a Federal  reserve  hank,  checks  and  drafts 
drawn  hy  any  depositor  in  any  other  Federal 
reserve  hank  or  member  hank  upon  funds  to 
the  credit  of  said  depositor  in  said  reserve  hank 
or  member  hank.  Nothing  herein  contained 
shall  he  construed  as  prohibiting  a member 
hank  from  charging  its  actual  expense  incurred 
in  collecting  and  remitting  funds,  or  for  ex- 
change sold  to  its  patrons.  The  Federal  Re- 
serve Board  shall,  hy  rule,  fix  the  charges  to 
he  collected  hy  the  member  hanks  from  its 
patrons  whose  checks  are  cleared  through  the 
Federal  reserve  hank  and  the  charge  which  may 
he  imposed  for  the  service  of  clearing  or  collec- 
tion rendered  hy  the  Federal  reserve  bank.2* 

The  Federal  Reserve  Board  shall  make  and 
promulgate  from  time  to  time  regulations  gov- 
erning the  transfer  of  funds  and  charges  there- 
for among  Federal  reserve  hanks  and  their 
branches,  and  may  at  its  discretion  exercise  the 
functions  of  a clearing  house  for  such  Federal 
reserve  hanks,  or  may  designate  a Federal  re- 
serve hank  to  exercise  such  functions,  and  may 
also  require  each  such  hank  to  exercise  the 
functions  of  a clearing  house  for  its  member 
hanks.22 

21  RATE-MAKING. — Here  the  Federal  Reserve 
Board  is  very  properly  clothed  with  authority  to  de- 
termine rates.  Rate-making  requires  investigation 
and  an  opportunity  for  revision  as  conditions 
change,  which  requires  that  a board  or  other  form 
of  commission  shall  be  placed  in  charge. 

22  FEDERAL  CLEARING  HOUSE,  see  page  13. 


72 


HOW  THE  NEW  CURRENCY 


Sec.  17.  So  much  of  the  provisions  of  section 
fifty-one  hundred  and  fifty-nine  of  the  Revised 
Statutes  of  the  United  States,  and  section  four 
of  the  Act  of  June  20,  1874,  and  section  eight 
of  the  Act  of  July  12,  1882,  and  of  any  other 
provisions  of  existing  statutes  as  require  that 
before  any  national  banking  association  shall 
be  authorized  to  commence  banking  business  it 
shall  transfer  and  deliver  to  the  Treasurer  of 
the  United  States  a stated  amount  of  United 
States  registered  bonds  is  hereby  repealed. 

REFUNDING  BONDS— RETIREMENT  OF 
NATIONAL  BANK  NOTES 

Sec.  18.  After  two  years  from  the  passage 
of  this  Act,  and  at  any  time  during  a period 
of  twenty  years  thereafter,  any  member  bank 
desiring  to  retire  the  whole  or  any  part  of  its 
circulating  notes  may  file  with  the  Treasurer 
of  the  United  States  an  application  to  sell  for 
its  account,  at  par  and  accrued  interest,  United 
States  bonds  securing  circulation  to  be  retired. 

The  Treasurer  shall,  at  the  end  of  each 
quarterly  period,  furnish  the  Federal  Reserve 
Board  with  a list  of  such  applications,  and  the 
Federal  Reserve  Board  may,  in  its  discretion, 
require  the  Federal  reserve  banks  to  purchase 
such  bonds  from  the  banks  whose  applications 
have  been  filed  with  the  Treasurer  at  least  ten 
days  before  the  end  cf  any  quarterly  period  at 
which  the  Federal  Reserve  Board  may  direct 


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tho  purchase  to  be  made:  Provided,  That  Fed- 
eral reserve  banks  shall  not  be  permitted  to 
purchase  an  amount  to  exceed  $25,000,000  of 
such  bonds  in  any  one  year,  which  amount  shall 
include  bonds  acquired  under  section  four  of 
this  Act  by  the  Federal  reserve  bank. 

Provided  further,  That  the  Federal  Reserve 
Board  shall  allot  to  each  Federal  reserve  bank 
such  proportion  of  such  bonds  as  the  capital  and 
surplus  of  such  bank  shall  bear  to  the  aggre- 
gate capital  and  surplus  of  all  the  Federal  re- 
serve banks. 

Upon  notice  from  the  Treasurer  of  the  amount 
of  bonds  so  sold  for  its  account,  each  member 
bank  shall  duly  assign  and  transfer,  in  writing, 
such  bonds  to  the  Federal  reserve  bank  purchas- 
ing the  same,  and  such  Federal  reserve  bank 
shall,  thereupon,  deposit  lawful  money  with  the 
Treasurer  of  the  United  States  for  the  purchase 
price  of  such  bonds,  and  the  Treasurer  shall 
pay  to  the  member  bank  selling  such  bonds 
any  balance  due  after  deducting  a sufficient 
sum  to  redeem  its  outstanding  notes  secured 
by  such  bonds,  which  notes  shall  be  canceled 
and  permanently  retired  when  redeemed. 

The  Federal  reserve  banks  purchasing  such 
bonds  shall  be  permitted  to  take  out  an  amount 
of  circulating  notes  equal  to  the  par  value  of 
such  bonds. 

Upon  the  deposit  with  the  Treasurer  of  the 
United  States  of  bonds  so  purchased,  or  any 
bonds  with  the  circulating  privilege  acquired 


74 


HOW  THE  NEW  CURRENCY 


under  section  four  of  this  Act,  any  Federal 
reserve  bank  making  such  deposit  in  the  man- 
ner provided  by  existing  law  shall  be  entitled 
to  receive  from  the  Comptroller  of  the  Currency 
circulating  notes  in  blank,  registered  and 
countersigned  as  provided  by  law,  equal  in 
amount  to  the  par  value  of  the  bonds  so  de- 
posited. Such  notes  shall  be  the  obligations  of 
the  Federal  reserve  bank  procuring  the  same, 
and  shall  be  in  form  prescribed  by  the  Secre- 
tary of  the  Treasury,  and  to  the  same  tenor 
and  effect  as  national  bank  notes  now  provided 
by  law.  They  shall  be  issued  and  redeemed 
under  the  same  terms  and  conditions  as  national 
bank  notes  except  that  they  shall  not  be  limited 
to  the  amount  of  the  capital  stock  of  the  Fed- 
eral reserve  bank  issuing  them. 

Upon  application  of  any  Federal  reserve 
bank,  approved  by  the  Federal  Reserve  Board, 
the  Secretary  of  the  Treasury  may  issue,  in 
exchange  for  United  States  two  per  centum 
gold  bonds  bearing  the  circulation  privilege, 
but  against  which  no  circulation  is  outstand- 
ing, one-year  gold  notes  of  the  United  States 
without  the  circulation  privilege,  to  an  amount 
not  to  exceed  one-half  of  the  two  per  centum 
bonds  so  tendered  for  exchange,  and  thirty-year 
three  per  centum  gold  bonds  without  the  circu- 
lation privilege  for  the  remainder  of  the  two 
per  centum  bonds  so  tendered:  Provided,  That 
at  the  time  of  such  exchange  the  Federal  re- 
serve bank  obtaining  such  one-year  gold  notes 


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shall  enter  into  an  obligation  with  the  Secre- 
tary of  the  Treasury  binding  itself  to  purchase 
from  the  United  States  for  gold  at  the  maturity 
of  such  one-year  notes  an  amount  equal  to 
those  delivered  in  exchange  for  such  bonds,  if 
so  requested  by  the  Secretary,  and,  at  each  ma- 
turity of  one-year  notes  so  purchased  by  such 
Federal  reserve  bank,  to  purchase  from  the 
United  States  such  an  amount  of  one-year  notes 
as  the  Secretary  may  tender  to  such  bank,  not 
to  exceed  the  amount  issued  to  such  bank  in 
the  first  instance,  in  exchange  for  the  two  per 
centum  United  States  gold  bonds;  said  obliga- 
tion to  purchase  at  maturity  such  notes  shall 
continue  in  force  for  a period  not  to  exceed 
thirty  years. 

For  the  purpose  of  making  the  exchange  here- 
in provided  for,  the  Secretary  of  the  Treasury 
is  authorized  to  issue  at  par  Treasury  notes  in 
coupon  or  registered  form  as  he  may  prescribe 
in  denominations  of  one  hundred  dollars,  or 
any  multiple  thereof,  bearing  interest  at  the 
rate  of  three  per  centum  per  annum,  payable 
quarterly,  such  Treasury  notes  to  be  payable 
not  more  than  one  year  from  the  date  of  their 
issue  in  gold  coin  of  the  present  standard  value, 
and  to  be  exempt  as  to  principal  and  interest 
from  the  payment  of  all  taxes  and  duties  of 
the  United  States  except  as  provided  by  this 
Act,  as  well  as  from  taxes  in  any  form  by  or 
under  State,  municipal,  or  local  authorities. 
And,  for  the  same  purpose,  the  Secretary  is 


76 


HOW  THE  NEW  CUBBENCY 


authorized  and  empowered  to  issue  United 
States  gold  bonds  at  par,  bearing  three  per 
centum  interest  payable  thirty  years  from  date 
of  issue,  such  bonds  to  be  of  the  same  general 
tenor  and  effect  and  to  be  issued  under  the 
same  general  terms  and  conditions  as  the  United 
States  three  per  centum  bonds  without  the  cir- 
culation privilege  now  issued  and  outstanding. 

Upon  application  of  any  Federal  reserve 
bank,  approved  by  the  Federal  Beserve  Board, 
the  Secretary  may  issue  at  par  such  three  per 
centum  bonds  in  exchange  for  the  one-year  gold 
notes  herein  provided  for.23 


BANK  BESEBYES 

Sec.  19.  Demand  deposits  within  the  mean- 
ing of  this  Act  shall  comprise  all  deposits  pay- 
able within  thirty  days,  and  time  deposits  shall 
comprise  all  deposits  payable  after  thirty  days, 
and  all  savings  accounts  and  certificates  of  de- 
posit which  are  subject  to  not  less  than  thirty 
days’  notice  before  payment. 

When  the  Secretary  of  the  Treasury  shall 
have  officially  announced,  in  such  manner  as 
he  may  elect,  the  establishment  of  a Federal 
reserve  bank  in  any  district,  every  subscribing 
member  bank  shall  establish  and  maintain  re- 
serves as  follows: 

23  NATIONAL  BANK  CIRCULATION.^-For  an 
additional  provision  on  the  subject  in  this  section 
see  note  2,  page  30,  and  section  20. 


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(a)  A bank  not  in  a reserve  or  central  re- 
serve city  as  now  or  hereafter  defined  shall 
held  and  maintain  reserves  equal  to  twelve  24 
per  centum  of  the  aggregate  amount  of  its  de- 
mand deposits  and  five  per  centum  of  its  time 
deposits,  as  follows: 

In  its  vaults,  for  a period  of  thirty-six  months 
after  said  date,  five-twelfths  thereof  and  per- 
manently thereafter  four-twelfths. 

In  the  Federal  reserve  bank  of  its  district, 
for  a period  of  twelve  months  after  said  date, 
two-twelfths,  and  for  each  succeeding  six 
months  an  additional  one-twelfth,  until  five- 
twelfths  have  been  so  deposited,  which  shall  be 
the  amount  permanently  required. 

For  a period  of  thirty-six  months  after  said 
date  the  balance  of  the  reserves  may  be  held 
in  its  own  vaults,  or  in  the  Federal  reserve 
bank,  or  in  national  banks  in  reserve  or  cen- 
tral reserve  cities  as  now  defined  by  law. 

After  said  thirty-six  months  ’ period  said  re- 
serves, other  than  those  hereinbefore  required 
to  be  held  in  the  vaults  of  the  member  bank 
and  in  the  Federal  reserve  bank,  shall  be  held 
in  the  vaults  of  the  member  bank  or  in  the 
Federal  reserve  bank,  or  in  both,  at  the  option 
of  the  member  bank. 

(b)  A bank  in  a reserve  city,  as  now  or  here- 
after defined,  shall  hold  and  maintain  reserves 

21  RESERVES  IN  COUNTRY  BANKS.— This  pro- 
vision for  12  per  cent,  will  take  the  place  of  15 
per  cent. 


78 


HOW  THE  NEW  CURRENCY 


equal  to  fifteen  2s  per  centum  of  the  aggregate 
amount  of  its  demand  deposits  and  five  per 
centum  of  its  time  deposits,  as  follows: 

In  its  vaults,  for  a period  of  thirty-six  months 
after  said  date,  six-fifteenths  thereof,  and  per- 
manently thereafter  five-fifteenths. 

In  the  Federal  reserve  bank  of  its  district 
for  a period  of  twelve  months  after  the  date 
aforesaid  at  least  three-fifteenths,  and  for  each 
succeeding  six  months  an  additional  one-fif- 
teenth, until  six-fifteenths  have  been  so  de- 
posited, which  shall  be  the  amount  permanently 
required. 

For  a period  of  thirty-six  months  after  said 
date  the  balance  of  the  reserves  may  be  held 
in  its  own  vaults,  or  in  the  Federal  reserve 
bank,  or  in  national  banks  in  reserve  or  central 
reserve  cities  as  now  defined  by  law. 

After  said  thirty-six  months’  period  all  of 
said  reserves,  except  those  hereinbefore  required 
to  be  held  permanently  in  the  vaults  of  the 
member  bank  and  in  the  Federal  reserve  bank, 
shall  be  held  in  its  vaults  or  in  the  Federal  re- 
serve bank,  or  in  both,  at  the  option  of  the 
member  bank. 

(c)  A bank  in  a central  reserve  city,  as  now 
or  hereafter  defined,  shall  hold  and  maintain  a 

25  RESERVES  IN  “RESERVE”  CITIES.— This 
new  rate  of  15  per  cent,  will  take  the  place  of  25 
per  cent.  This  vast  lessening  in  the  cost  of  doing 
business  comes  as  the  result  of  providing  an  elas- 
tic volume  of  currency  and  the  mobilization  of  a 
portion  of  the  bank  reserves. 


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reserve  equal  to  eighteen  26  per  centum  of  the 
aggregate  amount  of  its  demand  deposits  and 
five  per  centum  of  its  time  deposits,  as  follows: 

In  its  vaults  six-eighteenths  thereof. 

In  the  Federal  reserve  hank  seven-eighteenths. 

The  balance  of  said  reserves  shall  he  held  in 
its  own  vaults  or  in  the  Federal  reserve  hank, 
at  its  option. 

Any  Federal  reserve  hank  may  receive  from 
the  member  hanks  as  reserves,  not  exceeding 
one-half  of  each  installment,  eligible  paper  as 
described  in  section  fourteen  properly  indorsed 
and  acceptable  to  the  said  reserve  hank. 

If  a State  hank  or  trust  company  is  required 
by  the  law  of  its  State  to  keep  its  reserves 
either  in  its  own  vaults  or  with  another  State 
hank  or  trust  company,  such  reserve  deposits 
so  kept  in  such  State  hank  or  trust  company 
shall  he  construed,  within  the  meaning  of  this 
section,  as  if  they  were  reserve  deposits  in  a 
national  hank  in  a reserve  or  central  reserve 
city  for  a period  of  three  years  after  the  Secre- 
tary of  the  Treasury  shall  have  officially  an- 
nounced the  establishment  of  a Federal  reserve 
hank  in  the  district  in  which  such  State  hank 
or  trust  company  is  situated.  Except  as  thus 
provided,  no  member  hank  shall  keep  on  de- 
posit with  any  non-member  hank  a sum  in  ex- 
cess of  ten  per  centum  of  its  own  paid-up  capi- 
tal and  surplus.  No  member  hank  shall  act  as 

26  RESERVES  IN  “CENTRAL,  RESERVE" 
CITIES. — This  rate  of  18  per  cent,  will  take  the 
place  of  25  per  cent. 


80 


HOW  THE  NEW  CURRENCY 


the  medium  or  agent  of  a non-member  bank 
in  applying  for  or  receiving  discounts  from  a 
Federal  reserve  bank  under  the  provisions  of 
this  Act  except  by  permission  of  the  Federal 
Reserve  Board.  . 

The  reserve  carried  by  a member  bank  with 
a Federal  reserve  bank  may,  under  the  regula- 
tions and  subject  to  such  penalties  as  may  be 
prescribed  by  the  Federal  Reserve  Board,  be 
checked  against  and  withdrawn  by  such  mem- 
ber bank  for  the  purpose  of  meeting  existing 
liabilities:  Provided,  however,  That  no  bank 
shall  at  any  time  make  new  loans  or  shall  pay 
any  dividends  unless  and  until  the  total  reserve 
required  by  law  is  fully  restored. 

In  estimating  the  reserves  required  by  this 
Act,  the  net  balance  of  amounts  due  to  and 
from  other  banks  shall  be  taken  as  the  basis 
for  ascertaining  the  deposits  against  which  re- 
serves shall  be  determined.  Balances  in  re- 
serve banks  due  to  member  banks  shall,  to 
the  extent  herein  provided,  be  counted  as  re- 
serves. 

National  banks  located  in  Alaska  or  outside 
the  continental  United  States  may  remain  non- 
member banks,  and  shall  in  that  event  maintain 
reserves  and  comply  with  all  the  conditions  now 
provided  by  law  regulating  them;  or  said  banks, 
except  in  the  Philippine  Islands,  may,  with  the 
consent  of  the  Reserve  Board,  become  member 
banks  of  any  one  of  the  reserve  districts,  and 
shall,  in  that  event,  take  stock,  maintain  re- 


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serves,  and  be  subject  to  all  the  other  pro- 
visions of  this  Act. 

Sec.  20.  So  much  of  sections  two  and  three 
of  the  Act  of  June  20,  1874,  entitled  “An  Act 
fixing  the  amount  of  United  States  notes,  pro- 
viding for  a redistribution  of  the  national  bank 
currency,  and  for  other  purposes,  ” as  provides 
that  the  fund  deposited  by  any  national  bank- 
ing association  -with  the  Treasurer  of  the  United 
States  for  the  redemption  of  its  notes  shall  be 
counted  as  a part  of  its  lawful  reserve  as  pro- 
vided in  the  Act  aforesaid,  is  hereby  repealed. 
And  from  and  after  the  passage  of  this  Act 
such  fund  of  five  per  centum  shall  in  no  case 
be  counted  by  any  national  banking  association 
as  a part  of  its  lawful  reserve. 

BANK  EXAMINATIONS  27 

Sec.  21.  Section  fifty-two  hundred  and  forty, 
United  States  Revised  Statutes,  is  amended  to 
read  as  follows: 

The  Comptroller  of  the  Currency,  with  the 
approval  of  the  Secretary  of  the  Treasury,  shall 
appoint  examiners  who  shall  examine  every 
member  bank  at  least  twice  in  each  calendar 
year  and  oftener  if  considered  necessary:  Pro- 
vided, however,  That  the  Federal  Reserve  Board 
may  authorize  examination  by  the  State  author- 
s'7 STRICTER  CONTROL  OF  NATIONAL 
BANKS. — The  object  of  this  section  amending  the 
law  concerning  bank  examinations  is  to  provide  a 
stricter  control  of  National  banks. 


82 


HOW  THE  NEW  CURRENCY 


ities  to  be  accepted  in  the  case  of  State  banks 
and  trust  companies  and  may  at  any  time  direct 
the  holding  of  a special  examination  of  State 
banks  or  trust  companies  that  are  stockholders 
in  any  Federal  reserve  bank.  The  examiner 
making  the  examination  of  any  national  bank, 
or  of  any  other  member  bank,  shall  have  power 
to  make  a thorough  examination  of  all  the  af- 
fairs of  the  bank  and  in  doing  so  he  shall  have 
power  to  administer  oaths  and  to  examine  any 
of  the  officers  and  agents  thereof  under  oath 
and  shall  make  a full  and  detailed  report  of 
the  condition  of  said  bank  to  the  Comptroller 
of  the  Currency. 

The  Federal  Reserve  Board,  upon  the  recom- 
mendation of  the  Comptroller  of  the  Currency, 
shall  fix  the  salaries  of  all  bank  examiners  and 
make  report  thereof  to  Congress.  The  expense 
of  the  examinations  herein  provided  for  shall 
be  assessed  by  the  Comptroller  of  the  Currency 
upon  the  banks  examined  in  proportion  to  as- 
sets or  resources  held  by  the  banks  upon  the 
dates  of  examination  of  the  various  banks. 

In  addition  to  the  examinations  made  and 
conducted  by  the  Comptroller  of  the  Currency, 
every  Federal  reserve  bank  may,  with  the  ap- 
proval of  the  Federal  reserve  agent  or  the  Fed- 
eral Reserve  Board,  provide  for  special  exami- 
nation of  member  banks  within  its  district. 
The  expense  of  such  examinations  shall  be 
borne  by  the  bank  examined.  Such  examina- 
tions shall  be  so  conducted  as  to  inform  the 


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Federal  reserve  bank  of  the  condition  of  its 
member  banks  and  of  the  lines  of  credit  which 
are  being  extended  by  them.  Every  Federal 
reserve  bank  shall  at  all  times  furnish  to  the 
Federal  Keserve  Board  such  information  as  may 
be  demanded  concerning  the  condition  of  any 
member  bank  within  the  district  of  said  Fed- 
eral reserve  bank. 

No  bank  shall  be  subject  to  any  visitatorial 
powers  other  than  such  as  are  authorized  by 
law,  or  vested  in  the  courts  of  justice  or  such 
as  shall  be  or  shall  have  been  exercised  or 
directed  by  Congress,  or  by  either  House  there- 
of or  by  any  committee  of  Congress  or  of  either 
House  duly  authorized. 

The  Federal  Reserve  Board  shall,  at  least 
once  each  year,  order  an  examination  of  each 
Federal  reserve  bank,  and  upon  joint  applica- 
tion of  ten  member  banks  the  Federal  Reserve 
Board  shall  order  a special  examination  and 
report  of  the  condition  of  any  Federal  reserve 
bank. 

Sec.  22.  No  member  bank  or  any  officer,  di- 
rector, or  employee  thereof  shall  hereafter  make 
any  loan  or  grant  any  gratuity  to  any  bank  ex- 
aminer. Any  bank  officer,  director,  or  employee 
violating  this  provision  shall  be  deemed  guilty 
of  a misdemeanor  and  shall  be  imprisoned  not 
exceeding  one  year  or  fined  not  more  than 
$5,000,  or  both;  and  may  be  fined  a further 
sum  equal  to  the  money  so  loaned  or  gratuity 
given.  Any  examiner  accepting  a loan  or 


84 


HOW  THE  NEW  CURRENCY 


gratuity  from  any  bank  examined  by  him  or 
from  an  officer,  director,  or  employee  thereof 
shall  be  deemed  guilty  of  a misdemeanor  and 
shall  be  imprisoned  not  exceeding  one  year  or 
fined  not  more  than  $5,000,  or  both;  and  may 
be  fined  a further  sum  equal  to  the  money  so 
loaned  or  gratuity  given;  and  shall  forever 
thereafter  be  disqualified  from  holding  office  as 
a national  bank  examiner.  No  national  bank 
examiner  shall  perform  any  other  service  for 
compensation  while  holding  such  office  for  any 
bank  or  officer,  director,  or  employee  thereof. 

Other  than  the  usual  salary  or  director’s  fee 
paid  to  any  officer,  director,  or  employes  of  a 
member  bank  and  other  than  a reasonable  fee 
paid  by  said  bank  to  such  officer,  director,  or 
employee  for  services  rendered  to  such  bank, 
no  officer,  director,  employee,  or  attorney  of  a 
member  bank  shall  be  a beneficiary  of  or  re- 
ceive, directly  or  indirectly,  any  fee,  commis- 
sion, gift,  or  other  consideration  for  or  in  con- 
nection with  any  transaction  or  business  of 
the  bank.  No  examiner,  public  or  private,  shall 
disclose  the  names  of  borrowers  or  the  collat- 
eral of  loans  of  a member  bank  to  other  than 
the  proper  officers  of  such  bank  without  first 
having  obtained  express  permission  in  writ- 
ing from  the  Comptroller  of  the  Currency,  or 
from  the  board  of  directors  of  such  bank,  ex- 
cept when  ordered  to  do  so  by  a court  of  com- 
petent jurisdiction,  or  by  direction  of  the  Con- 
gress of  the  United  States,  or  of  either  House 


LAW  AFFECTS  ME 


85 


thereof,  or  any  committee  of  Congress  or  of 
either  House  duly  authorized.  Any  person 
violating  any  provision  of  this  section  shall  be 
punished  by  a fine  of  not  exceeding  $5,000  or 
by  imprisonment  not  exceeding  one  year,  or 
both. 

Except  as  provided  in  existing  laws,  this 
provision  shall  not  take  effect  until  sixty  days 
after  the  passage  of  this  Act. 

Sec.  23.  The  stockholders  of  every  national 
banking  association  shall  be  held  individually 
responsible  for  all  contracts,  debts,  and  en- 
gagements of  such  association,  each  to  the 
amount  of  his  stock  therein,  at  the  par  value 
thereof  in  addition  to  the  amount  invested  in 
such  stock.  The  stockholders  in  any  national 
banking  association  wTio  shall  have  transferred 
their  shares  or  registered  the  transfer  thereof 
within  sixty  days  next  before  the  date  of  the 
failure  of  such  association  to  meet  its  obliga- 
tions, or  with  knowledge  of  such  impending 
failure,  shall  be  liable  to  the  same  extent  as 
if  they  had  made  no  such  transfer,  to  the  ex- 
tent that  the  subsequent  transferee  fails  to 
meet  such  liability;  but  this  provision  shall  not 
be  construed  to  affect  in  any  way  any  recourse 
which  such  shareholders  might  otherwise  have 
against  those  in  whose  names  such  shares  are 
registered  at  the  time  of  such  failure. 


86 


HOW  THE  NEW  CURRENCY 


LOANS  ON  FARM  LANDS  28 

Sec.  24.  Any  national  banking  association 
not  situated  in  a central  reserve  city  may  make 
loans  secured  by  improved  and  unencumbered 
farm  land,  situated  within  its  Federal  reserve 
district,  but  no  such  loan  shall  be  made  for  a 
longer  time  than  five  years,  nor  for  an  amount 
exceeding  fifty  per  centum  of  the  actual  value 
of  the  property  offered  as  security.  Any  such 
bank  may  make  such  loans  in  an  aggregate 
sum  equal  to  twenty-five  per  centum  of  its 
capital  and  surplus  or  to  one-third  of  its  time 
deposits  and  such  banks  may  continue  hereafter 
as  heretofore  to  receive  time  deposits  and  to 
pay  interest  on  the  same. 

The  Federal  Reserve  Board  shall  have  power 
from  time  to  time  to  add  to  the  list  of  cities 
in  which  national  banks  shall  not  be  permitted 
to  make  loans  secured  upon  real  estate  in  the 
manner  described  in  this  section. 

FOREIGN  BRANCHES  29 

Sec.  25.  Any  national  banking  association 
possessing  a capital  and  surplus  of  $1,000,000 
or  more  may  file  application  with  the  Federal 

28  FARM  LOANS  BY  NATIONAL  BANKS.— 
Under  the  party  now  in  power  the  farmers  are  re- 
ceiving additional  rights,  some  of  which  are  enu- 
merated in  note  11,  page  61. 

20  FOREIGN  BRANCHES.— One  of  the  addi- 
tional powers  offered  to  National  banks  is  that  of 
establishing  foreign  branches,  under  regulations 
set  forth  in  the  succeeding  section. 


LAW  AFFECTS  ME 


87 


Reserve  Board,  upon  such  conditions  and  under 
such  regulations  as  may  be  prescribed  by  the 
said  board,  for  the  purpose  of  securing  author- 
ity to  establish  branches  in  foreign  countries 
or  dependencies  of  the  United  States  for  the 
furtherance  of  the  foreign  commerce  of  the 
United  States,  and  to  act,  if  required  to  do 
so,  as  fiscal  agents  of  the  United  States.  Such 
application  shall  specify,  in  addition  to  the 
name  and  capital  of  the  banking  association 
filing  it,  the  place  or  places  where  the  banking 
operations  proposed  are  to  be  carried  on,  and 
the  amount  of  capital  set  aside  for  the  conduct 
of  its  foreign  business.  The  Federal  Reserve 
Board  shall  have  power  to  approve  or  to  reject 
such  application  if,  in  its  judgment,  the  amount 
of  capital  proposed  to  be  set  aside  for  the  con- 
duct of  foreign  business  is  inadequate,  or  if  for 
other  reasons  the  granting  of  such  application 
is  deemed  inexpedient. 

Every  national  banking  association  which 
shall  receive  authority  to  establish  foreign 
branches  shall  be  required  at  all  times  to  fur- 
nish information  concerning  the  condition  of 
such  branches  to  the  Comptroller  of  the  Cur- 
rency upon  demand,  and  the  Federal  Reserve 
Board  may  order  special  examinations  of  the 
said  foreign  branches  at  such  time  or  times 
as  it  may  deem  best.  Every  such  national  bank- 
ing association  shall  conduct  the  accounts  of 
each  foreign  branch  independently  of  the  ac- 
counts of  other  foreign  branches  established  by 


88 


HOW  THE  NEW  CURRENCY 


it  and  of  its  home  office,  and  shall  at  the  end 
of  each  fiscal  period  transfer  to  its  general 
ledger  the  profit  or  loss  accruing  at  each  branch 
as  a separate  item. 

Sec.  26.  All  provisions  of  law  inconsistent 
with  or  superseded  by  any  of  the  provisions 
of  this  Act  are  to  that  extent  and  to  that  ex- 
tent only  hereby  repealed:  Provided,  Nothing 
in  this  Act  contained  shall  be  construed  to  re- 
peal the  parity  provision  or  provisions  contained 
in  an  Act  approved  March  14,  1900,  entitled 
“An  Act  to  define  and  fix  the  standard  of 
value,  to  maintain  the  parity  of  all  forms  of 
money  issued  or  coined  by  the  United  States, 
to  refund  the  public  debt,  and  for  other  pur- 
poses/ 9 and  the  Secretary  of  the  Treasury  may, 
for  the  purpose  of  maintaining  such  parity  and 
to  strengthen  the  gold  reserve,  borrow  gold  on 
the  security  of  United  States  bonds  authorized 
by  section  two  of  the  Act  last  referred  to  or 
for  one-year  gold  notes  bearing  interest  at  a 
rate  of  not  to  exceed  three  per  centum  per 
annum,  or  sell  the  same  if  necessary  to  obtain 
gold.  When  the  funds  of  the  Treasury  on  hand 
justify,  he  may  purchase  and  retire  such  out- 
standing bonds  and  notes. 

ALDRICH-VREELAND  ACT  EXTENDED 
AND  CHANGED 

Sec.  27.  The  provisions  of  the  Act  of  May 
13,  1908,  authorizing  national  currency  associa- 


LAW  AFFECTS  ME 


89 


tions,  the  issue  of  additional  national  bank 
circulation,  and  creating  a National  Monetary 
Commission,  which  expires  by  limitation  under 
the  terms  of  such  Act  on  the  30th  day  of  June, 
1914,  are  hereby  extended  to  June  30,  1915,  and 
sections  fifty-one  hundred  and  fifty-three,  fifty- 
one  hundred  and  seventy-two,  fifty-one  hundred 
and  ninety-one,  and  fifty-two  hundred  and  four- 
teen of  the  Revised  Statutes  of  the  United 
States,  which  were  amended  by  the  Act  of 
May  30,  1908,  are  hereby  reenacted  to  read  as 
such  sections  read  prior  to  May  30,  1908,  sub- 
ject to  such  amendments  or  modifications  as  are 
prescribed  in  this  Act:  Provided,  however,  That 
section  nine  of  the  Act  first  referred  to  in  this 
section  is  hereby  amended  so  as  to  change  the 
tax  rates  fixed  in  said  Act  by  making  the  por- 
tion applicable  thereto  read  as  follows: 

National  banking  associations  having  circu- 
lating notes  secured  otherwise  than  by  bonds 
of  the  United  States  shall  pay  for  the  first 
three  months  a tax  at  the  rate  of  three  per 
centum  per  annum  upon  the  average  amount 
of  such  of  their  notes  in  circulation  as  are  based 
upon  the  deposit  of  such  securities,  and  after- 
wards an  additional  tax  rate  of  one-half  of  one 
per  centum  per  annum  for  each  month  until  a 
tax  of  six  per  centum  per  annum  is  reached,  and 
thereafter  such  tax  of  six  per  centum  per  annum 
upon  the  average  amount  of  such  notes. 30 

30  COMPARISON  OF  PERCENTAGES.— The 
per  cent,  of  tax  provided  for  under  the  Aldrich- 
Vreeland  Act  was  as  follows:  Five  per  cent,  per 


90 


HOW  THE  NEW  CURRENCY 


REDUCTION  OF  CAPITAL  STOCK  IN 
NATIONAL  BANKS 

Sec.  28.  Section  fifty-one  hundred  and  forty- 
three  of  the  Revised  Statutes  is  hereby  amended 
and  reenacted  to  read  as  follows:  Any  associa- 
tion formed  under  this  title  may,  by  the  vote 
of  shareholders  owning  two-thirds  of  its  capital 
stock,  reduce  its  capital  to  any  sum  not  below 
the  amount  required  by  this  title  to  authorize 
the  formation  of  associations;  but  no  such  re- 
duction shall  be  allowable  which  will  reduce  the 
capital  of  the  association  below  the  amount  re- 
quired for  its  outstanding  circulation,  nor  shall 
any  reduction  be  made  until  the  amount  of  the 
proposed  reduction  has  been  reported  to  the 
Comptroller  of  the  Currency  and  such  reduc- 
tion has  been  approved  by  the  said  Comptroller 
of  the  Currency  and  by  the  Federal  Reserve 
Board,  or  by  the  organization  committee  pend- 
ing the  organization  of  the  Federal  Reserve 
Board. 

CONSTITUTIONAL  LAW— AMENDMENT 

Sec.  29.  If  any  clause,  sentence,  paragraph, 
or  part  of  this  Act  shall  for  any  reason  be  ad- 
judged by  any  court  of  competent  jurisdiction 

annum,  for  the  first  month,  and  thereafter  “an 
additional  tax  of  one  per  cent,  per  annum  for  each 
month  until  a tax  of  ten  per  cent,  per  annum  is 
reached,  and  thereafter  such  tax  of  ten  per  centum, 
upon  the  average  amount  of  such  notes.” 


LAW  AFFECTS  ME 


91 


to  be  invalid,  such  judgment  shall  not  affect, 
impair,  or  invalidate  the  remainder  of  this  Act, 
but  shall  be  confined  in  its  operation  to  the 
clause,  sentence,  paragraph,  or  part  thereof  di- 
rectly involved  in  the  controversy  in  which 
such  judgment  shall  have  been  rendered. 

Sec.  30.  The  right  to  amend,  alter,  or  repeal 
this  Act  is  hereby  expressly  reserved. 

Approved,  December  23,  1913. 


PART  III 


HISTORY  OF  FLUCTUATIONS  IN  THE 
PURCHASING  POWER  OF  MONEY, 
1897-1914 

As  is  explained  in  Part  I,  the  purchasing 
power  of  money  has  fluctuated  greatly  in  the 
past,  owing  to  an  incomplete  control  of  the 
volume  of  money  and  credit  in  use.  The  history 
of  those  fluctuations  for  the  United  States  is 
shown  in  the  following  measurements  taken  by 
the  Federal  Government  in  its  Department  of 
Labor,  beginning  in  1902: 

The  measurement  is  of  wholesale  prices  in  the 
leading  markets  for  255  products,  with  aver- 
ages for  the  years  1890  to  1900  as  the  basis,  or 

100.  This  index  number,  as  it  is  termed,  was 
constructed  by  giving  due  prominence  to  wheat, 
corn,  and  so  forth  by  including  them  in  several 
forms.  The  average  of  prices  at  any  one  time 
is  termed  the  price  level  or  general  prices. 

Tremendous  fluctuations  in  this  price  level 
have  taken  place  since  1890.  The  average  for 
the  year  1897  was  down  to  89.7,  the  low  point 
for  any  one  year  in  modern  times.  The  next 
year  the  average  was  93,  and  the  following  year 

101,  a gain  of  8 points  in  a single  year.  The 

92 


THE  NEW  CURRENCY  LAW 


93 


next  year,  1900,  the  average  of  prices  jumped 
something  like  12  per  cent  in  six  months,  largely 
due  to  the  legislation  inflating  the  paper  cur- 
rency by  the  act  of  March  14,  1900.  But  dur- 
ing the  summer  and  autumn  the  prices  sagged 
and  this  continued  until  well  into  1901,  going 
down  3 or  4 points.  For  1902,  as  a whole,  the 
rise  in  prices  for  commodities  as  compared  with 
1901  was  4 points.  For  1903,  as  a whole,  the 
average  of  prices  for  commodities  was  nearly 
stationary,  although  for  part  of  the  year  there 
was  considerable  fall.  For  1904  the  average 
for  the  year  was  about  the  same  as  for  1903. 
The  next  year,  1905,  the  price  level  went  up  2 
points;  then  up  7 points  in  1906;  and  again  the 
next  year  up  7 points  more.  These  14  points  of 
rise  in  the  prices  for  commodities,  being  a cor- 
responding depreciation  in  the  purchasing  power 
of  money,  were  for  the  entire  two  years,  and 
we  know  that  from  September,  1907,  to  the 
end  of  the  year — the  time  of  the  terrific  panic 
for  money — there  was  a serious  fall  in  prices. 
For  1908,  as  a whole,  the  prices  for  commodi- 
ties went  down  7 points,  and  there  was  a much 
greater  fall  from  October,  1907,  to  July,  1908. 
For  1909  prices  went  up  nearly  four  points  over 
the  average  for  the  preceding  year,  to  126. 
The  following  year  prices  went  up  5 points  more; 
and  the  next  year,  1911,  down  2 points,  and  for 
1912  up  4 points,  the  high  point  for  the  price 
level  to  that  time.  From  December  1,  1912,  to 
December  1,  1913,  there  was  a fall  of  3.3  per 


94 


HOW  THE  NEW  CURRENCY 


cent.,  according  to  Bradstreet.  In  brief,  from 
1896  to  December,  1912,  there  was  a 40  per  cent, 
rise  in  the  average  of  prices  for  commodities  at 
wholesale — the  purchasing  power  was  depre- 
ciated 40  per  cent.  Previous  to  this  era  of  de- 
preciating money  there  were  nearly  30  years 
during  the  principal  part  of  which  time  there 
were  falling  prices  for  commodities — an  appre- 
ciating money. 

Practically  the  same  terrific  changes  have 
taken  place  throughout  the  gold  standard  world. 
Tables  of  prices  for  several  of  the  countries  of 
Europe  for  the  era  of  rising  prices  were  pre- 
sented to  the  British  Statistical  Society  in 
December,  1911,  and  are  published  in  its  jour- 
nal for  that  date  at  page  35.  The  data  shows 
that  in  Germany  the  average  rise  in  prices  for 
commodities  at  wholesale  has  been  about  the 
same  as  in  the  United  States,  namely,  42  per 
cent,  in  Germany  for  the  13  years  from  1896  to 
and  including  1909,  as  compared  with  a 40  per 
cent,  rise  in  this  country,  and  a 30  per  cent,  rise 
in  France,  and  a 21  per  cent,  rise  in  England. 
Two  years  later  in  England  the  rise  amounted 
to  31  per  cent. 

The  continuation  of  the  measurement  of  the 
price  level  for  the  United  States  by  the  Depart- 
ment of  Labor  will  be  mailed  to  you  without 
charge  if  you  request  it.  Address  the  Depart- 
ment at  Washington,  D.  C. 

Under  the  new  Federal  Reserve  system  sta- 
bility in  the  price  level  should  be  secured,  ex- 


LAW  AFFECTS  ME 


95 


cept  that  enough  of  a rise  should  be  provided 
for  from  harvest  time  to  harvest  time  to  allow 
for  the  cost  of  carrying  the  crops.  When  the 
prices  drop  at  harvest  time  there  also  should 
be  a corresponding  drop  in  the  price  level. 

From  month  to  month  watch  Bradstreet’s  in- 
dex number  of  general  prices;  that  is,  the  aver- 
age of  prices  (price  level)  for  products  at  whole- 
sale. It  is  published  in  Bradstreet’s  Weekly. 

A PROPHECY 

The  author,  after  years  of  study  of  money 
and  prices  and  a most  full  consideration  of  the 
probable  course  of  events  in  connection  with 
the  control  of  the  price  level  by  the  Federal 
Reserve  Board,  states  as  his  deliberate  opinion 
that  business  men  will  meet  with  the  conditions 
predicted  in  Part  I. 


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BY  USING  YOUR  BRAINS 


instead  of  laboring  day  after  day  for  a mere 
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